When you find a home in the perfect location but it needs a bit of work, a rehab loan might be the solution. Rehab loans, also known as renovation loans, allow you to purchase or refinance a home in need of repairs or upgrades.
Understanding Rehab Loans
Rehab loans combine the purchase price of the home and the cost of repairs or upgrades into a single loan. They are ideal for properties that require significant work, allowing you to make improvements immediately after purchasing.
Types of Rehab Loans
There are several types of rehab loans, but the two most common are:
- FHA 203(k) Loans: Backed by the Federal Housing Administration (FHA), these loans allow you to purchase or refinance a home that needs repairs. The FHA 203(k) loan program includes a ‘Limited’ option for minor remodeling and non-structural repairs and a ‘Standard’ option for more substantial renovations.
- HomeStyle Renovation Loans: Offered by Fannie Mae, these loans can be used for any improvements, repairs or remodels that add value to a property.
Benefits of Rehab Loans
- Finance Home Improvements: Rehab loans enable you to finance both the purchase of a home and the cost of improvements in one loan, simplifying the financing process.
- Increase Property Value: By making necessary repairs or upgrades, you can potentially increase the value of the property.
- Lower Interest Rates: Compared to other forms of financing home improvements, such as credit cards or personal loans, rehab loans typically offer lower interest rates.
Considerations Before Applying for a Rehab Loan
While rehab loans offer unique advantages, they also come with certain considerations:
- Project Management: You’ll need to get estimates from licensed contractors and manage the renovation process, which can be time-consuming.
- Longer Closing Times: Rehab loans often require more time to close due to the additional paperwork involved.
We’ll Help You Get It in Shape
A rehab loan can be a useful tool when purchasing a fixer-upper or updating your current home. If you’re ready to transform a house into your dream home, contact your Meridian Mortgage Loan Officer to explore your options.