Gap funding is a way to get $0 down BRRRR properties!
You should use gap funding for BRRRRs the same way you do fix-and-flips. The biggest differences happen at closing.
Similarities to Fix-and-Flips
Gap funding is used very similarly for both BRRRR and flips: for down payments, construction costs, or carry costs.
The bulk of the money not covered by a hard money lenders becomes the down payment. Most lenders require at least 10% for this cost.
Your primary loan does not always cover construction costs – rehab, repair, or anything necessary to bring the house up to the ARV and onto the market.
Also, some investors like to use gap funding for the carry costs of the project: the mortgage payment, the insurance, and all other monthly costs.
Gap funders can (and should) be used for all these phases of your BRRRR project.
Gap Funding Process During BRRRRs
Use BRRRR gap funding like fix-and-flip gap funding: for down payment, construction, or carry costs.
For BRRRR though, you need to close the gap funding loan on the same day as closing. You’ll also need to be sure you close the gap funding at the title company, with your lender. So you’ll need to know in advance that your hard money lender allows gap funding with a lien on the property.
Protecting Your BRRRR Refinance While Using Gap Funding
If you close your gap loan too late or incorrectly, your long-term lender can consider your refinance cash-out, not rate-and-term. This will lower the LTV on your refinance.
It’s important to get the money for your loan back in the refinance. In a good BRRRR transaction, you walk away with a house that’s cash-flowing and little to no money out of your pocket.
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