There are some great things about buying a fixer upper home and some things that are not so great. A lot of the success of doing this depends on whether you’re handy, and whether you can fix many of the issues yourself to save money. When you choose a fixer upper, you have to understand the issues the house has, but you also have to be able to look past those issues to your vision of what the house could ultimately become. One of the ways you can bring that vision to life with a house that needs a lot of work is through a rehab loan that lets you buy the home and do the work on it, all with the same mortgage. Then you don’t have to try to get additional financing, and you’ll have the money you need, but there are some restrictions.
What Is a Rehab Loan?
A rehab loan is a loan that is specifically designed to allow a buyer to purchase a home that needs work and have that work done. These loans are for more than the purchase price, but you can’t just get one by saying how much extra you want or what you want to spend on the house. Instead, you need proof of what needs done on the home, and you need contractors to complete the work. The extra money that you get for the house will go to those contractors and not just be available to be spent by the purchaser. The FHA 203(k) loan is among the most popular for rehab, but there are other options through some lenders. Working with a lender to get the right loan for your needs is important.
What Is a Fixer Upper?
If you’re considering getting a rehab loan so you can improve your home, you’re probably buying a fixer upper. While that’s a common term, many people are confused about what it means. A lot of homes have cosmetic issues or things that you would change because they aren’t to your taste. However, if you can move in and live there without the need to make changes for safety or general usability, the house really doesn’t need fixing. It’s harder to get a rehab loan because you want to redo the kitchen than it is to get one because there isn’t any kitchen at all. If you’re purchasing a true fixer upper, the odds will be against you being able to move into the home and live there in its current state.
Can You Really Get a Great Deal?
One of the best things about a fixer upper is the price. The seller probably doesn’t want to do all the necessary work to fix up the home, because it can get expensive and may feel overwhelming. Maybe the seller lives out of state, or they are disabled. They may just need the money from selling the house. What matters is what kind of deal you’re getting on the house and on the rehab loan, based on the price, terms and interest rate you’re being offered. If you can get a great deal on a fixer upper and a good rehab loan from a lender you trust, you may find that you can make a house that needs work into something beautiful without spending a lot; however, problems can occur during renovation of any property, and you should always be prepared for the unexpected.
Do I Still Need to Pay for a Home Inspection?
Anytime you’re buying a house, you want to get a home inspection. Some people avoid doing that because they just want to buy the house. They assume they can spot the problems themselves or that there must not be anything very serious wrong if there had been someone living there recently. Still, a crumbling foundation or other types of problems might not be so easily spotted by someone who isn’t used to inspecting houses. Even on a fixer upper where you know there are problems, getting a home inspection is an excellent way to get the peace of mind you’re looking for anytime you purchase a home. An inspection doesn’t cost that much and is well worth having.
Will the Appraisal Be a Problem?
The appraisal might be a problem when trying to get a standard, conventional loan on a house that needs a lot of work. For a rehab loan, though, things are a bit different. The appraisal will take into account the work that will be performed on the house and what it will be expected to be worth at that time. That can allow you to buy a house that technically isn’t worth what you’re paying for it when you consider the cost of the rehab loan, but that will appraise at the price of the loan or higher when the work has been completed. By getting a rehab loan, you’re investing in your future and in a house that can make a great home when some work has been performed on it.
How Does the Process Compare to Traditional Loans?
Most lenders offer rehab loans, although some do more of these types of loans than others. By asking around, you can find a lender who will help you get what you need. You’ll have to qualify just like you would for a conventional loan, and you’ll need a lender who understands your unique needs. Rehab loans can also take longer to process, so be aware that it might take a while for your loan to close. In the end, the extra time can be well worth it to get a great house for an excellent price and make it into everything you want your home to be.
2 Point Highlight
When you choose a fixer upper you have to understand the issues the house has, but you also have to be able to look past those issues to your vision of what the house could ultimately become.
The appraisal will take into account the work that will be performed on the house, and what it will be expected to be worth at that time.
