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After Repair Value Purchase Loan (ARV)

After Repair Value Loan Explained

  • Purchase and Rehab – After Repair Value Hard Money Loan

An “After Repair Value” (ARV) construction loan is designed to provide financing for real estate investors looking to purchase and rehabilitate properties. Here’s how it works:

1. Initial Property Assessment:

  • The borrower identifies a property in need of renovation and approaches a lender for financing.
  • The lender appraises the property to determine its current as-is value and estimates its ARV based on the proposed renovations.

2. ARV Loan Approval Process:

  • The lender evaluates the borrower’s project plans, budget, and experience.
  • The loan amount is typically based on a percentage of the ARV, often ranging from 65% to 75%.
  • For example, if the ARV is estimated at $1,000,000, the lender might approve a loan up to $700,000 (70% of ARV).

3. Disbursement of Funds:

  • The loan may cover both the purchase price of the property and the renovation costs.
  • Funds for renovations are often released in stages, or draws, based on the completion of specified project milestones.
  • Inspections are conducted at each stage to ensure that the work is being completed according to the plan.

4. Interest Rates and Repayment:

  • ARV construction loans are usually short-term loans with higher interest rates compared to traditional mortgages, reflecting the increased risk.
  • Borrowers typically make interest-only payments during the renovation period.
  • Once the project is completed and the property’s value has increased, the borrower can refinance into a long-term mortgage, sell the property, or pay off the loan through other means.

5. Final Appraisal and Loan Payoff:

  • Upon completion of the renovations, the lender performs a final appraisal to confirm the property’s new value.
  • If the property’s ARV meets or exceeds expectations, the borrower finalizes the loan terms, often transitioning to a conventional mortgage or selling the property to repay the loan.

In summary, an ARV construction loan enables investors to finance the purchase and renovation of a property, leveraging the expected increase in value after repairs are completed. The process involves careful planning, regular inspections, and adherence to the agreed-upon renovation schedule to ensure the project’s success and secure the necessary funding.

Available in the Following States:

Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, and Washington.

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