So, my realtor is telling me that there is a loan offered called a rehab loan, for fixer upper houses. None of the loan officers that I have spoken to seem to offer this type of loan? Does anyone know a little more about this type of loan? I can't seem to get a lot of information about it, I found a few things online, but I'm still not exactly sure how it works??
Thanks in advance!!
I was informed about this during my home buying process as well. The name of the financing is a 203k loan. I don't know how it works with conventional financing, but with FHA financing I was informed they allowed 30k above buying price if approved withinin normal lending guidelines. The tricky part is, the house is reappraised after the rehab is complete(I believe they give you 6 months, someone correct me if I'm wrong). If the house appraises for less than the amount of the loan with the 30k extra, you get to write them a big fat check to cover the difference. So say the house is purchased at 100k, and you take out 130k to rehab it. The house reappraises for 125k, you will then owe the lender 5k. Hope this helps
^^^The poster above is correct - it's called an FHA 203k loan. There may be other rehab loans but I don't know what they are called.
However, the process for a rehab loan is slightly different here - you can borrow more than $30k but the process is streamlined if the loan is under $30k. You need to use contractors (not handymen) to do the work and they have to provide their bids and their contracts in advance. So there is no overage because the lender will advance 50% up front for the contract to do the work after you close and the other 50% when everyone has completed the job AND the appraiser has gone back out to check the work to make sure it is completed. Use a lender that does a lot of these - because if you don't the process is a nightmare.