Hello, I want to purchase a investment property for around $35K and $5K to fix it up. A loan person told me about a Rehab loan where they give you 100% of the future home value + 100% of the repairs at a rate of 14-16% for 3-6 months. She said after you fix up the house within that time, you can get a conventional loan at a lower rate, but you must repay the first loan. What are the pros and cons of this type loan? Has anyone any experience? Thanks so much.

I am not familiar with a rehab loan that charges 14-16%. If that is their nominal rate, they will probably screw you to the wall with excess loan charges. FHA offers a "203K" program for that purpose (do Google). Not too many lenders offer that, because it is very convoluted and time consuming. I believe that FNMA also has a loan available for rehab purposes, but I am just too lazy to look it up. With the massive melt down of the mortgae industry caused by the glib lenders with plaid sport coats and lime green pants, and consumers all to willing to listen to their siren song, the rules and availability of money for residential mortgage loans change daily. As Elmer Fudd would say: "be wewy wewy careful" and read ALL the fine print on any offering.

I just noticed that this is for an investment property- sorry FHA is only for owner occupied.

Most of the rehab loans around are for primary residence. That's probably why you were quoted that insane rate. If you have an equtiy line on your present residence you may want to use that for the rehab money and just put a first mortgage on the investment property.

And FYI... I have done many FHA 203k loans. They involve a little more paper work, but in the end are a great product for this type of thing... but as stated above are only for primary residence.