Rehab Loans
What are Rehab Loans?
Rehab loans, also known as renovation loans, are designed to help homeowners and buyers finance the cost of repairs or renovations for a property. These loans combine the purchase price (or existing mortgage) with renovation costs into a single mortgage, allowing you to fund home improvements without taking out a separate loan. Popular options include FHA 203(k) loans and Fannie Mae’s HomeStyle loans, which allow borrowers to buy or refinance homes in need of repairs while spreading out the costs over the life of the loan.
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Are Rehab Loans Right for You?
Rehab loans are ideal for homebuyers and homeowners who are looking to purchase a home that needs repairs or those who want to renovate their current home. These loans are also a great option for real estate investors and buyers who are interested in fixer-uppers. If you want to make major improvements to your property but don’t want to take out a separate loan or dip into personal savings, a rehab loan could be the right choice for you.
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Eligibility Requirements
To qualify for a rehab loan, you typically need to meet the following criteria:
Minimum Credit Score
A credit score of 620 is generally required, though FHA 203(k) loans may have more lenient requirements.
Down Payment
A minimum down payment of 3.5% for FHA 203(k) loans or 5% for conventional rehab loans is required.
Debt-to-Income Ratio
Your debt-to-income (DTI) ratio should be no more than 43%, though exceptions may be made with compensating factors.
Property Type
The property must be a primary residence for FHA 203(k) loans, while conventional rehab loans can be used for primary residences, second homes, and investment properties.
Qualified Contractor
You must work with a licensed contractor to complete the renovation work, and the lender typically oversees the project’s progress.
Rehab Loans
Numbers at a Glance
Here’s a quick overview of key numbers associated with this type of loans
Minimum Credit Score
620
Varies by lender
Down Payment
3.5% to 5%
Varies by loan type
Maximum DTI Ratio
43%
Varies by lender
Loan Term
15 or 30
Years to payoff the loan
Upfront Mortgage Insurance Premium (UFMIP)
1.75%
Of the loan amount (for FHA 203(k) loans)
Annual Mortgage Insurance Premium (MIP)
0.45% to 1.05%
Of the loan amount (for FHA 203(k) loans)
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We offer a variety of loan programs designed to meet the needs of every homebuyer.
Rehab Home Loan is perfect for you?
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Benefits of Rehab Loans
1.
Combines Purchase and Renovation Costs
Rehab loans allow you to combine the cost of buying or refinancing a home with the funds needed for renovations into a single mortgage.
2.
Flexible Renovation Options
These loans can be used for various home improvements, including structural repairs, cosmetic updates, and even energy-efficient upgrades.
3.
Increases Property Value
Renovations funded through a rehab loan can significantly increase the value of your property, providing a higher return on investment when it’s time to sell.
4.
Lower Interest Rates Compared to Personal Loans
Rehab loans typically offer lower interest rates than personal loans or credit cards, making them a more affordable option for financing home improvements.
Not the Loan You’re Looking for?
Check out other loan options
Ideal for borrowers with good credit, conventional loans offer competitive interest rates and flexible terms.
Conventional Loans
Available to veterans and active-duty service members, VA loans provide excellent terms with no down payment required.
VA Loans
Backed by the Federal Housing Administration, FHA loans are perfect for first-time homebuyers or those with less-than-perfect credit.
FHA Loans
Designed for higher-priced homes, jumbo loans offer financing options above conventional loan limits.
Jumbo Loans
ARMs start with a lower fixed interest rate for an initial period, then adjust periodically based on market conditions.
ARMs Loans
These government-backed loans are tailored for rural and suburban homebuyers, often with zero down payment.
USDA Loans
Pay only the interest on your mortgage for a set period, ideal for buyers who expect an increase in income or future refinancing.
Interest-Only Loans
Enjoy the security of a consistent interest rate and stable monthly payments for the life of your loan.
Fixed-Rate Loans
Allows homeowners 62+ to access home equity without monthly payments, repaid when the home is sold or vacated.
Reverse Mortgage
Flexible loans for borrowers who don’t meet standard lending criteria are ideal for those with irregular income.
Non-QM Loans
You can always ask for advice from a mortgage loan expert.
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Rehab Loans FAQ’s
Can I use a rehab loan for a second home or investment property?
Yes, some rehab loans, such as Fannie Mae’s HomeStyle loans, can be used for second homes and investment properties. FHA 203(k) loans are only for primary residences.
How much can I borrow with a rehab loan?
The amount you can borrow depends on the type of loan and the after-repair value (ARV) of the home. Lenders typically limit the loan amount to the value of the home after renovations are completed.
What types of renovations can be done with a rehab loan?
Rehab loans can be used for a wide range of home improvements, including structural repairs, modernizing kitchens or bathrooms, adding rooms, or improving energy efficiency.
Yes, some rehab loans, such as Fannie Mae’s HomeStyle loans, can be used for second homes and investment properties. FHA 203(k) loans are only for primary residences.The amount you can borrow depends on the type of loan and the after-repair value (ARV) of the home. Lenders typically limit the loan amount to the value of the home after renovations are completed.Rehab loans can be used for a wide range of home improvements, including structural repairs, modernizing kitchens or bathrooms, adding rooms, or improving energy efficiency.
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