Rehab loans allow you to finance repairs and renovations made to the property, which can be completed after closing. These loans allows the borrower to combine the purchase price of the home plus renovation costs into a single mortgage. Lenders require an estimate of renovation costs, and there are varying limitations to what repairs can be made. Both FHA and Conventional Rehab loans are available.
FHA Rehab Loans
A 203(k) Rehab Mortgage is only the home renovation loan offered by the Federal Housing Administration. A down payment of 3.5% is required for this loan. A limited 203(k) loan is for cosmetic improvements only, and cannot exceed $35,000. A standard 203(k) loan can be used for extensive renovations. You must hire a 203(k) consultant to oversee every step of the remodeling process for a standard 203(k) loan. The funds for renovations stay in escrow, and are used as needed throughout the process.
Conventional Rehab Loans
The Fannie Mae HomeStyle Renovation loan is a conventional mortgage option. Like the FHA 203(k), this loan allows borrowers to include renovation costs in a home mortgage. There are different options for conventional rehab loans. To see some available options, click here. Down payments for conventional loans range from 5%-10%, and the limitations vary depending on the type of loan and the lender.
Finding the best loan for your personal needs can be overwhelming. New England Home Mortgage strives to help you understand all your options and find the best fit for your financial situation. Read an overview of our mortgage options here, or contact us today for an in-person appointment. If interested in a rehab loan program, please set up a consultation to ensure that you fully understand the product and requirements.
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