Imagine your client finding the perfect home to purchase, but the property could use some repairs or has code violations that need to be cleared up before a lender will loan on the property. Perhaps the buyers don’t have the ability to pay cash for the property or have the funds to update the property. Are there any solutions?
The good news is YES. A renovation or rehabilitation loan that will allow your clients to not only acquire the property, but also make necessary renovations or repairs.
With a rehab mortgage loan, money is set aside for repairs and placed in escrow at the time of closing, which allows everything to be completed in a single transaction. Rehab mortgages allow buyers to borrow based on what the house is expected to be worth after the renovations are completed. Homeowners can also use rehab mortgages to refinance their existing mortgage plus the renovation costs into one loan.
The three major rehab loans are the FHA 203k Streamline, FHA 203K Standard, and the Fannie Mae Homestyle. They each have different criteria as far as what is allowed and the different types of properties and rehab that can be done. See the table above, (click for a full-size printable PDF) that provides a snapshot of the different loan programs.