Rehab loans, or renovation loans, allow you to buy and upgrade a house that needs some work done.
Many houses with issues, such as an old roof, will not get appraised, which means a traditional mortgage loan will not go through. With a rehab loan, you can account for the purchase price of the house and the costs to fix issues.
For example, you can get a rehab loan for $230,000 - $200,000 of which goes to the purchase price of the home, while the other $30,000 goes to renovations.
There are a lot of options to what type of renovations can be completed with a rehab loan. Some of these include:
One important factor to keep in mind is the application process for rehab loans takes longer than the process for traditional loans. This is because a contractor is required to break down all the costs for upgrades.
The contractor’s work can take between 1-3 weeks. Once you have the paperwork from the contractor, you can bring that to your mortgage broker and begin the process to qualify for an FHA or Conventional rehab loan.
Of course, your mortgage lender always wants to be sure that the house appraises for the amount you paid for it or more.
Often, homes purchased with a rehab loan appraise for higher than the total amount of a loan. With the example of buying a home for $200,000 and putting in $30,000 for renovations (for a total loan amount of $230,000), the home could appraise for $250,000 or more. When this happens, you have created instant equity in the house.
Are you interested in a rehab loan? Contact us for more information.