Are you interested in buying a run-down house and fixing it up? If so, you will need a way to finance the project unless you have enough cash in the bank to pay for it. Most people do not have enough money to complete a house flip, so they turn to rehab loans. If you have never used a rehab loan, here are the details you need to know about how they work.

Find a Lender That Offers Them

The first thing you must do is find a lender that offers rehab loans. Many lenders do not offer these types of loans, but some do. If you can find a lender that offers them, the lender might call them rehab loans or fix and flip loans. Some lenders also call these hard money loans. While they have different names, they all work the same way.

Ask About the Eligibility Guidelines

After finding a lender that offers rehab loans, you might want to ask them about the eligibility requirements. Lenders will not issue these loans to everyone that wants one. Instead, they have criteria that a borrower must meet to qualify for one. One thing that many lenders look for is experience. If you have no experience flipping houses or working in the construction industry, you might face challenges getting approved. You might also need a specific credit score to qualify. Rehab loans fall into the high-risk loan category, which means that lenders take risks when issuing them.

Learn About the Terms

The next thing you must do is ask about the terms of these loans. Rehab loans are not like other loan types. One difference is the duration. When you borrow money through a rehab loan, you might have only one year to repay the money. Secondly, you will likely pay a higher interest rate on the money you borrow.

Complete the Project

If your lender approves your loan request, you should aim to start working on the project immediately. You will not have a lot of time to complete it, so you should not hesitate to start. Once you finish the project and sell the house, you can repay the money you borrowed.

Using a rehab loan to complete a house flip is a smart move if a lender approves your loan request and if you choose the right house. If you have questions about the loan process or eligibility requirements for rehab loans, contact a local lender.