With real estate back on the upswing and investors looking for different ways to make their money work, buying homes that need a rehab can be a good move if done right.
There is a lot more to a rehab than just buying and improving, though. On the financial side, there are loans specifically for FHA rehabs.
If you plan to get an FHA rehab loan, or you are not sure about the differences between that kind of loan and a conventional rehab loan, be sure you understand the requirements before you apply.
As with any investment, you don’t want to accept a loan that you are not sure about, or one that you do not clearly understand, because that could easily lead to both emotional and financial regret. The best way to make sure you are getting the loan you need to fix up the house you want to buy is to be clear on the requirements of the home rehab loans you are considering.
The FHA and Rehab Home Loans
What is a rehab loan through the FHA?
This is a loan that allows you to borrow more than the price you are paying for a property. You use the extra money to make repairs and upgrades, bringing the house up to better quality and a higher value. A rehab mortgage can be the best way to get a house you really want that is going to need some work to make a livable place.
How to get a rehab loan varies a little bit, depending on which lender you work with. Many people choose a lender who offers a 203k loan through the FHA, because this loan typically has a lower interest rate and better terms than many other types of rehab mortgage loans.
With an FHA 203K rehab loan from a company like Prospect Mortgage, you can get a house that can be turned into your dream home – and you can find a way to make it affordable for you.
Rehab financing through an FHA 203k loan is an excellent way to repair an older house and make it beautiful and comfortable again. It is also a great way for people who do not have a lot of money to spend on a house to get something they can really enjoy for years to come. If you plan to spend more than $35,000 on the rehab of your home, though, you will need to work with contractors and submit a bid to the bank as part of your loan package.
Working Within the Loan Guidelines
After you are approved for an FHA 203k rehab loan, you will need to continue to work with the contractor you originally got a bank-approved bid from. That can be very upsetting if you find that you do not like the contractor or you want to make changes. It is possible to change contractors, but it is a complicated process and can be difficult. Choosing your contractor wisely is an important part of getting a rehab loan, so you can move through the actual rehab process as easily as possible.
You don’t want to get stuck with a bad contractor because you were in a hurry to get the loan or to get a bid to the bank. Taking your time and researching contractors thoroughly is a much better choice, and can keep you happier throughout the process of completing the rehab.
There are other loan guidelines to consider, as well, and your loan will generally take longer to close than a standard mortgage without included rehab funding. Expect at least 45 days to close your loan, and some rehab financing through the FHA can take even longer than that.
Knowing ahead of time that the loan will take a while can help reduce your stress levels. Just be sure that you provide any information the lender asks for as quickly as reasonably possible, so you can keep your loan moving toward closing. By providing information in a timely manner and working with your lender to make sure all the FHA loan guidelines are being met, gives you the highest chance of getting your loan and getting started making your new place into everything you have always wanted.
