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What to Do If You Want to Rehab Your Home but Are Low on Cash

by James Cartwright on Aug 7, 2015

Have you been thinking about a new bathroom? Considering remodeling the kitchen? Perhaps you’ve thought about how a new addition would increase your living space. Even if you are a Do-It-Yourselfer you will still need plenty of cash. If you are short on that commodity there is a government backed program designed to make getting home rehab loans easier, and you will likely want to take advantage of it.

What is a Home Rehab Loan?

Home rehab loans enable homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.  Backed by the U.S. Department of Housing and Urban Development (HUD), the FHA 203K loan fills a unique and important need for homebuyers – instead of homeowners having to apply for a mortgage and a separate loan for home improvements, both are conveniently wrapped up into one single loan.

What is a 203k Home Rehab Loan?

In the past, rehab loans came from either a second mortgage, equity loan, or from homeowners using expensive credit card debt to finance projects. These sources were complicated and costly. FHA rehab 203k loans are rehab loans for homeowners that are issued by private lenders but are insured by the government. This makes the lenders more comfortable in issuing the loans, oftentimes at terrific rates. It also gives homeowners another valuable option in getting the money they need for improvements they want to make.

Why an FHA 203k Rehab Loan is Especially Valuable for DIYers

A rehab loan is based on the value of a home after the project is completed. That means if a property is worth $200,000 and worth $250,000 after the renovations, the loan adds $50,000 worth of value to the home. Someone who is skilled at do-it-yourself projects may be able to accomplish this with $25,000 worth of materials and by providing their own “sweat equity”. This can result is several favorable situations.

  • You could use the additional value to make more improvements.
  • You can lessen the amount of money needed for your projects.
  • You can finance the full amount and use the funds elsewhere.

Plus, when you use your skills or those of family and friends, you increase the likelihood you will not have to use any out of pocket money to complete your project.

Guidelines You Should Know About

There are limitations/guidelines to a 203k rehab loan but they are far from restrictive. Projects must be at least $5,000 and homes must be at least one year old. Projects that can be completed under the program are also varied. They include structural alterations and reconstruction, modernizations and improvements to the home’s functionality, and eliminating health and safety issues. They also include alterations that improve a home’s appearance, update plumbing, roofing, flooring and major landscaping. Energy conservation improvements and accessibility options for a disabled person would also be covered under the program. So, as you can see, the restrictions are far from restrictive.

How Do You Get a 203k Loan?

As we mentioned earlier, 203k loans are issued by private lenders. These private lenders must be FHA approved and must follow FHA guidelines, including knowledge of the FHA limits for your area. You can find knowledgeable and efficient 203k consultants with Prospect Mortgage at MyProspectMortgage.com and they can be of terrific value when applying for an FHA 203(k) rehab loan. They can steer you through the process and even offer other financing products you may be able to take advantage of.

If you are considering a major home remodeling project but are short on cash, especially if you have some DIY skills, 203(k) consultants are a valuable resource. Don’t be discouraged by talk of how hard it is to find money today. There are more and more products and programs being designed to be more inclusive. Check into the 203k rehab loan program and 203k consultants can help you do just that.

Photo Credit: Juhan Sonin

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