A study conducted by the National Association of Realtors a few years ago found only 17% of homebuyers got everything they wanted in their home. They didn't have to compromise on the location, updates, etc. An astounding 83% had to make a sacrifice somewhere in order to get into a home. That's incredible. What if it didn't have to be this way?
If you've never heard of a rehab mortgage, you're about to have your mind blown. There's both an FHA version and a conventional mortgage. Let's start with FHA. They have a product called a 203k. To quote HUD, "Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home." The purchase price and the renovation costs must total less than the FHA loan limit, so be aware. The renovations must also exceed $5000 in cost in order to be eligible. Your down payment will also be 3.5% of the total purchase plus renovation cost.
What FHA allows for renovations include:
- structural alterations and reconstruction
- modernization and improvements to the home's function
- elimination of health and safety hazards
- changes that improve appearance and eliminate obsolescence
- reconditioning or replacing plumbing; installing a well and/or septic system
- adding or replacing roofing, gutters, and downspouts
- adding or replacing floors and/or floor treatments
- major landscape work and site improvements
- enhancing accessibility for a disabled person
- making energy conservation improvements
They do not allow luxury items, such as swimming pools, outdoor kitchens, hot tubs, etc.
Now, a conventional rehab loan on the other hand has a lot more allowance for a buyer. The purchase price and renovation costs must stay under $424,100, and you have to bring at least 5% of the total purchase plus renovation for a down payment.
What conventional mortgages allow for rehab include:
- everything included in an FHA rehab
- swimming pools
- outdoor kitchens
- new appliances
- and more
This is a great product which allows you to roll your mortgage and rehab budget into one loan. Often rehab lines of credit can have higher interest rates than mortgages, so being able to utilize it all in one is a better deal all around for the consumer.
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