What is a 203K or Rehab loan?
Lenders offer different loan products that allow a buyer to purchase a home needing renovation. Typically these properties cannot go the route of a conventional, or FHA mortgages, due to lender guidelines. This type of loan allows you to add the repair costs into the mortgage.
Items to Consider:
1. All the work needs to be done by a licensed contractor. The contractor typically needs to be approved by the lender..so make sure your contractor will quickly fill out paperwork.
2. You must get the estimates done before the loan is submitted…this can be a huge delay in the process if you are not quick and on top of the estimates.
3. Your lender pays the contractors during different stages of the remodeling, and with each draw the lender sends somebody to verify the work was completed.
4. You will have 2 closings…one to purchase the house and then the final closing once the work is completed (similar to new construction).
5. The costs associated with this type of loan will be higher…you have 2 closings, more appraisal work, additional inspector visits, and a higher interest rate.
There are different types of rehab loans, they can be based off of the cost of the project, or the type of project (structural vs cosmetic for example) to name a couple. Make sure you pick a lender who has experience, the more complicated something becomes, the more you need somebody who can get it done.
Going this route can reap higher equity in the end. A great way to get a great deal on a home because a house that needs work is often priced under what the updates cost… let’s call it entrepreneurial profit.
Coming soon: What are the benefits of doing a rehab loan when buying a house?
-Just my thoughts. -Jenn
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FHA 203K Rehabilitation loans from the source: portal.HUD.gov
NH Housing offers a Home Flex Purchase Rehab
Contact your lender for what programs they may offer.
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