Recommendations To Help You With A Property Rehab Loan Process

Posted on: 19 January 2022

Buying a home is a pretty big investment, but when you need to buy a home and also fix it up as a rehab home, there are some other considerations to remember. Here are some recommendations to help you as you prepare to repair a home purchase as a rehab property.

Look at Loan Options

When you apply for a rehab loan, there are different types of lenders who will have different requirements. If you are buying the home as an investment in which you plan to fix it up and resell it for a profit, you need to find a lender who will be willing to lend the money to you based on the fact that you won't be living in the property. Otherwise, for a rehab home you plan to live in, there are specific FHA loans available for the process.

Financing, such as hard money loans, is a good option for a fix-and-flip property you don't plan to live in, because they will provide you the approved financing in a timely manner, but with an interest rate that is a bit higher. However, because you will usually fix up the home and resell it quickly, you can repay the loan quickly. Just be sure you can provide the lender with proof of income and any past history of investment deals. They will also evaluate the property for its after repair value (ARV) and loan you the funds based on this amount. So, for example, if a home you are buying costs $150,000 and the proposed repairs will cost $100,000, the home's after repair value is determined to be $300,000, which is more than the total loan costs of $250,000. The lender will determine the percentage they can loan you based on the property's ARV.

Evaluate Proposed Rehab Projects

Another item to consider when you buy a rehab home is the types of rehab repair that the home will need. You may need to provide a list of repairs to your lender during the application process in order for them to approve the entire loan. Based on if the loan is for a fix-and-flip or a rehab home you plan to live in, your lender will issue you specific requirements for the loan approval process.

If you plan to rehab a home you will live in, the lender will require you to first correct any issues in the home that pose health and safety hazards. This can include lead-based paint, moisture damage, missing safety railings on stairs and decks, and non-functioning or outdated electrical wiring. After these issues are corrected, you can also apply to repair the home's systems that are failing or old, such as the HVAC, plumbing, roof, and flooring, and make updates to the home's energy efficiency.