What are the eligibility criteria for taking out rehab home loans?
Are you planning to purchase a new home that needs improvement? You can take out a rehab home loan, with the help of which, you can buy the property as well as make repairs on it as you wish. Your new loan amount comprises of the purchase price along with the amount needed for improvement. Rehab home loans are usually referred to as FHA 203(k) loans, as they are funded by Federal Housing Administration, a part of the HUD (Department of Housing and Urban Development).
How a rehab loan differs from HELOC
A rehab loan is somewhat similar to HELOC, except that you take out a HELOC when you already own a home. The interest rates on both these loans are comparatively higher. However, it is beneficial for you as you can purchase a new property as well as make the necessary changes with the help of a single mortgage loan.
FHA 203(k) loan – Eligibility criteria
The purchased property should satisfy the following factors in order to make you eligible for taking out rehab home loans, such as a FHA 203(k) loan.
1.The purchased property should be 1-4 family dwelling that needs to be completed within a year.
2.You cannot demolish the entire home; some foundation should be intact.
3.Though rehab home loans can be originated on a ‘mixed use’ property (that is, a part of the residential property is used for commercial purpose), yet it should meet the following criteria:-
(a) Commercial unit is not more than 25% in case of a 1-story building.
(b) Area used for commercial purpose should not be more than 49% in case of a 2-story building.
(c) Commercial area is less than 33% in case of 3-story building.
(d) The rehabilitation funds need to be used only for the residential part of the property.
(e) The commercial unit should not affect the safety and health of the residential part.
Streamlined 203(k) loan – Eligibility criteria
Apart from taking out a FHA 203(k) loan, you can also try for streamlined 203(k), which requires less paperwork and the loan procedure is comparatively simple.
However, you as a borrower should fulfill the following characteristics in order to take out a streamlined 203(k) loan.
1.You should occupy the property as your primary residence.
2.Home improvement should be completed within 6 months.
3.You cannot keep it vacant for more than 30 days.
4.Improvement work should begin within 30 days from closing.
Though 203(k) loan enables you to purchase as well as improve your newly owned property, yet there are some restrictions on the repair work. You can obtain rehab home loans to finance room additions, painting along with some other improvements. However, you’ll not be able to make improvements that are not regarded as cost rehabilitation. You cannot move a load bearing wall, make major remodeling or fix any structural damage. Therefore, while taking out a rehab home loan, make sure you verify what improvements are eligible under your loan program.
Useful sites :
Tenant loans online – Read info and advice on how to get the cheapest tenant loans online.
Compare home loans- Do your home loan research online, compare home loans and mortgage broker options and find the right loan for your new home purchase.