What is a Rehab Loan?
A rehab loan is a mortgage that finances both the purchase or refinance of a home and its renovations all through one single loan.
Depending on your plans for the property, you may want to consider a few different types of loans. If you plan to renovate and live in the home or if you’re looking for financing to fix and flip the property, there are also various loan options available to fit your needs.
What can you use a rehab loan for?
A rehab loan can help you finance both the purchase and renovation of a property. Possible uses for a rehab loan include:
- Kitchen and bathroom remodels
- Septic system improvements
- Major appliance replacement
- Heating and air conditioning upgrades
- Improvements to make the home more energy efficient
- Replacing carpet and flooring
- Replacing the roof, new gutters and downspouts
- Painting
- Structural modifications
- Improving disability access
- Converting a single-family home into multiple units
- Larger landscaping projects
- Connecting to public water or sewer
FHA 203(k) permanent rehab loan
Best for: Homeowners who want to renovate their home for themselves.
A Federal Housing Administration (FHA) 203(k) loan is a great financing option if you’re looking to renovate either your own home or an investment property that you plan on holding onto for a while.
With this approach, instead of applying for multiple loans — such as a mortgage and a separate home renovation loan — you buy or refinance a home that needs repairs. The cost of the renovation is then rolled into your mortgage.
How does a rehab loan work?
Home improvement loans often have high-interest rates and short repayment terms. In comparison, 203(k) loans typically have lower rates and offer longer repayment terms while also being insured by the FHA.
The process for acquiring an FHA rehab loan is relatively straightforward:
- Apply with an approved lender
- Meet the credit requirements and get approved
- Choose a contractor
- Get the estimates for needed repairs
- Complete the repairs
- Move into the home
The value of the improvements on the property must be at least $5,000, but the total worth of the home cannot exceed FHA’s limit for your area.
Hard money rehab loan
Best for: Investors who want a short-term financing option
Hard money lenders differ from regular banks in that they don’t focus on your credit score or income as much when making their decision. Rather, they look at the value of what property you own that could act as collateral. So, if you have assets that are worth something, a hard money lender is more likely to give you a loan even if your credit score isn’t perfect. The amount of your loan is based on the property’s after-repair value (ARV) and you could get funding within days as opposed to waiting weeks or even months.
Get More Information On Rehab Loans
If you’re looking to flip houses to make a profit, you’ll likely have to put a lot of work into repairing and renovating the property. To finance both the house and the repairs, you might want to look into getting a rehab loan. Call (770) 757-5750 to speak with the mortgage professionals at Sword Mortgage to learn more about rehab loans and get started with your loan application today.
