Here’s Why Rehab Mortgages Are The Best For Fixer Uppers?

The real estate market is a tight one and it is becoming increasingly difficult to get your hands on the best houses in the market. Finding a suitable house is becoming increasingly difficult.
Now if you want a turnkey property, you can well count it as a long shot but if you opt to go for a fixer-upper, you can get your hands on a decent house quickly. You can renovate and reconstruct the house the way you want.

A rehab loan in Denver or wherever you are is a great option for those who are planning to reconstruct a house. This home improvement loan is definitely the first choice when it comes to fixer-uppers.

What is a rehab mortgage?

Rehab loans are a type of home improvement loan, which can be availed by those who are willing to purchase a property that is in need of work. This type of loan not only lends the money to purchase the home but also covers all the renovation and repair costs of the fixer-upper.

Benefits of rehab loans for fixer-uppers

→ With a decrease in the housing inventory these days, more and more people are opting for houses that are in need of repair. Rehab loans are a very useful tool when it comes to renovating a property. But there is one thing that you need to keep in mind while getting a rehab loan, it is that you need to be good at estimating the cost of the repair, as the overall repair charges are a bit difficult to estimate.

→ With this type of loan, the buyers get instant equity. While the houses that are in need of repair are sold out at a cheap rate the cost of renovation might not be all that expensive after all.

→ A rehab loan is a very convenient way to fix a house that is in need of repair. A home repair can be expensive at times, so if you opt to repair the house on your savings, you could quickly run out of money. A rehab loan is a great way to hold on to your savings while getting your house restored.

→ Rehab loans offer a very affordable interest rate. The interest offered on the burrowed money is far better than the average interest rates offered by other types of loans. This makes rehab loans a great choice when it comes to home renovation.

Properties eligible for rehab loans

→ Residences with one to four units.
→ Repair of granny units
→ Repair of co-ops and condos

What’s included in rehab loans?

→ design and engineering updates
→ architects and designer expenses
→ assessment cost of energy efficiency
→ Permit charges
→ Inspection costs

How do rehab loans work?

→ A buyer looking for a home first looks for a fixer-upper property and then completes a sales contract with a real estate agent. The contract should mention that the owner is looking for a home rehab loan and that the contract holds good only on loan approval.

→ The buyer then looks for a home rehab loan lender and thereby showcase a detailed proposal that includes the scope of work and a detailed estimate of the repair cost.

→ An appraisal is conducted that determines the value of the property after it is reconstructed.

→ If the buyer passes the credit-worthiness test then the loan is approved and closed with an amount that is deemed suitable to cover the purchase and repair of the entire property. The loan also includes a 10 to 20 percent contingency reserve.

→ Once the loan is closed, the seller is paid immediately and the remaining amount of money is transferred to an escrow account, which is used during the entire rehabilitation period.

Eligibility criteria for rehab loans

→ You need to have a credit score of 580 or above.
→ Applicable for primary residences only.
→ Down payment of minimum 3.5%