When you buy a house that needs work, it can be difficult finding a loan that will finance the purchase and the repairs. While there are some options to consider, you might want to consider using an FHA rehab loan. This loan type is one option that provides money for the purchase price and the repairs. If you want to rehab a home, you can pursue this loan type. Here are some of the features of FHA rehab loans you might want to know.
How They Base Loan Amounts
The first thing to understand is the basic principles of an FHA rehab loan. The lender bases the amount you finance on three main things. First, they must know the price you will pay for the house. This amount is the purchase price. The next thing they must know is the cost of renovations you plan to spend on the house. Finally, they will ask you how much money you can afford to put down on the loan.
What You Need to Qualify for the Loan
To qualify for an FHA rehab loan, you might need to meet credit score requirements. You might also need to put down a specific percentage of money on the home purchase. You will also need a written estimate for the repairs you want to put into the home. You must obtain the estimate from a licensed contractor, even if you plan to do the work yourself. The lender needs to know all these details to determine if they are willing to take the risks that come with these loans.
How It Works Once You Close
When you get approved for the loan and begin working on the purchase, your lender will issue you enough money to pay for the home purchase. Next, you will have money available to you in an escrow account for the work you perform on the house. You can take this money out through draws, but you might need to prove that you completed the work before you can take a draw from the escrow account you have.
Buying a house with an FHA loan is usually not very challenging, but using an FHA rehab loan can be somewhat more difficult. If you are interested in rehab loans, talk to your lender about this type and ask about others. There are other options, too, and your lender can help you find the best one for your situation.
For more information about rehab loans, reach out to a local lender.