Mortgage 101: What is a Rehab Loan?

Posted by Laine Smith on 10/28/14 10:00 AM

Topics: Home Buying

Finding a home that meets your criteria can be exhausting. Perhaps you like the style and nostalgia of an older home but desire the efficiency and updates of newer construction models. Or perhaps you’ve found the perfect home, but it’s in need of some major TLC. That’s where rehab loans come into play for today’s homebuyers.

Construction

A rehab loan is home financing available to homebuyers who want to purchase a home in need of repair or rehabilitation. These loans are beneficial to homebuyers and homeowners, because they allow the financing of the home and the repairs or construction to be wrapped into one loan. We’ll touch on two major different types of rehab loans:

FHA 203(K)

There are two types of FHA 203(k) loans: regular and streamline, both of which can be used for purchase or refinance but primary residences only.

203(k) Streamline

  • Used for homes needing minor, non-structural repairs
  • Financing up to $35,000 in improvements before move-in
  • No minimum repair costs
  • Can be used for improvements such as repair/replacement of roofs, gutters, downspouts, HVAC systems, plumbing and electrical systems, flooring, exterior decks, patios and porches, minor kitchen/bathroom renovations, etc.

203(k) Standard

  • Used for homes needing major rehabilitation
  • Renovation costs may exceed $35,000; minimum of $5,000 worth of repairs
  • Eligible improvements include all of 203(k) Streamline improvements as well as structural alterations, such as room additions, major kitchen and bathroom remodeling, basement refinishing, etc.

HomeStyle® Renovation Mortgage

The Fannie Mae HomeStyle® is a popular option for homebuyers purchasing a fixer-upper or homeowners who need to finance repairs, renovations, or energy efficient improvements.

With HomeStyle®, borrowers must provide a down payment equal to 5 percent of the value of the home after repairs have been made. The total cost of the project cannot exceed 50 percent of the as-completed value. Benefits include:

  • Available for primary residences, investors, non-profit organizations and local government agencies
  • Purchase or refinance and remodel
  • No minimum amount of repairs required
  • Luxury items are allowable, such as swimming pools, tennis courts, landscaping, etc.

Rehab loans are a great option for homebuyers and homeowners who want to consolidate their home financing with their home repair/construction/rehabilitation into one loan. If you are interested in purchasing a home in need of repairs or would like to refinance and update the home you currently own, contact one of our mortgage bankers for more information on rehab loans or download our Rehab Loan Guide, which provides expert insight into the world of rehab financing.

 

 Download: Rehab & Construction Guide

Image courtesy of tiramisustudio at FreeDigitalPhotos.net

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