If you own a house that needs major renovations, you may have trouble borrowing money on the home to make these renovations if your home does not currently have a lot of equity in it. Because of this, you may have no way to pay for the renovations your home needs. If you are in this situation, it might be wise to look into getting a rehab loan.
What is a rehab loan?
A rehab loan is a special type of loan that is used to pay for the cost of a home plus all the improvements it needs. It can be used to buy a house that needs some work, or it could be used to refinance your existing house loan in order to come up with money needed to make the renovations. These loans are specifically for making improvements on homes that need work.
The loan amount is typically based on the projected value of the home after the repairs are made. For example, assume your house is currently worth $150,000 and needs $50,000 of work. If this house will be worth $230,000 after the renovations are made, the loan amount will be based on this value. You may be able to borrow 80% of this amount, or possibly more, with a rehab loan. In fact, some lenders will give you up to 110% of the value of the home after the work is done through a rehab loan.
What are some of the requirements you have to follow?
If you want the extra money to renovate your existing home, you may be required to do the following things with a rehab loan:
- Provide a detailed estimate of the work you will do and the costs for the work
- Get an appraisal of your home and a projected appraisal that tells you the value of the house after the work is done
- Provide receipts for the work before the money is released to you
Every lender may have different requirements or rules to follow for rehab loans, and you can ask your lender about these if you call to learn more about rehab loans. When you call, you should ask about interest rates, loan amounts, and factors for getting approved for a loan. If you are ready to begin renovating your house and are interested in getting a rehab loan to make this possible, contact a lender, such as Financial One Mortgage.