How Rehab Loans Work
In a rehab loan, the lender underwrites both the current value of the property and the planned renovation scope. At closing, the acquisition funds are released. Renovation funds are held in a draw account and released in stages as the work progresses and inspections confirm completion of each phase. The total loan covers acquisition plus approved renovation budget.
A standard bridge loan funds a purchase but does not include renovation draws. A rehab loan includes both. If you need funds to renovate a property before selling or renting it, a rehab loan may be more appropriate than a standard bridge loan. Contact us to discuss your specific situation.
Common Uses for Rehab Loans in California
California investors and homeowners use rehab loans for fix-and-flip projects where the purchase price and renovation budget both need to be financed, rental property acquisitions that require significant repairs before a tenant can move in, and pre-sale renovations where a homeowner wants to fund improvements to increase their sale price.
Rehab Loan Underwriting
Rehab loans are underwritten on the as-is value of the property, the after-repair value (ARV), and the borrower's renovation plan. Lenders want to see a credible scope of work, a realistic budget, and evidence that the ARV supports the total loan amount at an acceptable LTV. California private lenders can fund rehab loans faster than institutional lenders, often in one to two weeks for investment properties.
Draw Process and Timeline
Renovation funds are released in draws after inspections confirm that work phases are complete. This protects the lender by ensuring funds are disbursed only as value is added to the property. Draw inspections add time and logistics to the renovation process, which investors should factor into their project timelines and holding cost calculations.