Rehab loan or FHA 203(k) loan is an all-in-one mortgage loan that allows purchasing or refinancing a house along with its renovation with one loan. Instead of applying for multiple loans (what increases the ultimate cost of the total loan for the borrower), it’s possible to apply for one loan with one interest, and one debt to pay off.
With the help of rehab home loans, it became easier to renovate your house or purchase the new one. The loan already includes the costs of renovation. Such a convenient decision allows decreasing the cost of the loan and taking advantage of home renovation.
The Department of Housing and Urban Development (HUD) has designed the rehab loan and set certain requirements for future borrowers. Along with basic requirements (minimum credit scores, debt-to-income ratios, income proof, etc.), the repairs and updating of the house must be started within 30 days of closing and be completed within six months.
The down payment makes up 3.5% of the total cost of the loan. It’s easy to find reasonable rehab loans rates either online or among real lending institutions.
Rehab loans are a good idea when your house needs a renovation or a house that you are about to purchase will benefit from updating. It gives you a reasonable opportunity to renovate your house and buy the new one for a lower price due to bad condition.