What is a Rehab Loan and When are They the Best Solution?
When looking at different loan options, you may ask yourself, “What is a rehab loan?” Rehab loans allow homebuyers or homeowners financing options for purchasing a home or refinancing an existing loan with the intention of renovating or reconstructing the house rolled into one single mortgage. Rehab loans are designed to work around the homeowner’s needs so that they can improve their current home with renovations, repairs, or upgrades. A rehab loan will help you create equity in your home by bringing it up-to-date.
Other advantages of obtaining a rehab loan include:
- You don’t need perfect credit, or be a first-time homebuyer
- Low down-payments and interest rates
- Eliminates having multiple loans with different banks or lenders - keeping you on the same repayment schedule
- You can buy a home that’s listed at a lower price because of its existing condition
- Upgrade your home based your style and needs
With certain rehab loans, you’re able to pay contractors quickly after closing, ensuring you can get into your home as soon as possible. Other rehab loans will offer a consultant to work with you, guiding you through the draw payments and inspections. Once the final payment is made to contractors, and if they come under budget, the remaining funds are applied directly to the loan’s principal balance.
When applying for the loan, two values will be assigned to the property: the as-is value and the value of the home after improvements with the planned repairs taken into account. The after-improvement value is what will be used for the loan amount. With no money up-front, the property will close in escrow, as-is, where the lender usually has planned repairs already.
When is a rehab loan the best solution?
Although exciting, buying a new home can be an overwhelming experience. Those that are looking for their dream home may not find one already built to their specific needs. That’s where rehab loans come in. Finding a home in the perfect area with a great school district may not have enough bedrooms for your growing family. Or you know that because you usually host family gatherings around the holidays, you need a more up-to-date and modern kitchen. Rehab loans are the perfect solution.
If you’re set on buying a “fixer-upper” but don’t have the funds, getting a rehab loan is ideal. There is the potential for the renovations to take longer than expected, leaving you unable to live in or rent out the home while you’re doing construction; financing mortgage payments may be an option for you.
In addition to single-family homes, rehab loans can also finance condos, multiple-unit properties, and mixed-use properties.
Renovo’s process has been designed around the needs and goals of investors. By choosing to focus on you, we can secure the best possible funding for your rehab loan. Our closing team works with our clients leading up to their closings and providing the guidance and assurance needed to close deals quickly - it’s why we’re frequently recognized for going above and beyond. We have a dedicated team for each project. Most importantly, when we say we'll do something, we mean it.