A great way to finance a home that you plan to rehab is with a 203K loan. What makes this loan different when compared to a conventional mortgage is that you can secure the money you need to purchase the home and perform all of the necessary repairs. Here are some things that you'll want to know if you are thinking about getting a 203K rehab loan.
Know That You Need A Contractor
One of the requirements of getting a 203K loan is that it requires that any work done to the home is performed by a licensed contractor. Even if you feel like you can do the repairs cheaper on your own, the lender wants to ensure that the repairs are done correctly by a contractor. This can add to the expense of having rehab work done, but it is the only way to show the lender that the repairs will be done in the correct manner.
If you want to do the repairs on your own, then you will not be able to use a 203K loan. You'll need to seek out some other financial product where you borrow the money you need, but it will likely be at a higher interest rate and need to be paid back much faster.
Know That Your Contractor Gets Paid Directly From The Lender
What makes a 203K loan so appealing is that you do not have to pay your contractor anything upfront to get the necessary repairs done. When you close on your home, a check for the repairs will actually be made directly to the contractor as part of the financing. This means that you can slowly pay those expenses off over the entire course of the loan, rather than need the additional money.
Know That You May Not Get A Loan For Major Repairs
There are limitations to the kind of home you can purchase based on the rehab work that needs to be done. It is possible that your lender thinks that the home is in such disrepair that it will require too much money to repair it. Your loan could end up being denied due to the scope of work, even if you are willing to pay for the repairs and can afford the monthly payment with all the repairs factored into the loan.
Reach out to a lender in your area for more info on 203K rehab loans.
Share19 May 2021
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