People who wish to purchase a distressed property and use a rehab loan to fix it up after closing have several options including FHA 203K and FHA 203Ks programs. Rural Housing (also known as RD, USDA or Farmers’ Home Loans) does have provisions for a minor amount of rehab money (under $10K) or ,when combined with a state housing agency program (like NH Housing Finance authority), it is possible to get up to $35K in rehab funds.
Generally the buyer of the home must have contractors look at the project and give a written proposal to do the work. The contractor must be appropriately licensed (or use licensed subcontractors) and be insured. For properties built before 1978, the contractor must be lead paint certified or the house has to be certified to not have lead paint.
The process isn’t too difficult although it is a little more complex than obtaining a regular loan. Having a lender behind you with experience who can guide you through it can make all the difference! I usually tell my clients that I will not accept an application from them until they have the contractor’s bid(s) in hand. It is imperative to get the contractors out to look at the property immediately. It is good practice to have 3 contractors bid on any project so that you can be sure that you are getting a fair deal. Each contractor will offer a unique perspective that will help you to see the big picture more clearly. Prepare to spend many hours within the first ten days of your offer being accepted, meeting with contractors and making important decisions on what you want to include in your rehab. Carpeting allowances, appliance allowances, etc are really important. If your contractor gives you $500 for flooring and the flooring you want is $1500 then you may end up having a problem down the road. So if you are considering a rehab loan, consider the upfront time necessary to do it right. Using a rehab loan to purchase (or refinance) a home in need of repair may very well be an excellent financial decision.
Author: Renee Duval — I am a top ten loan officer for NH Housing loans and I am a Certified Mortgage Professional (CMP) with the NH Mortgage Bankers & Brokers Association. NMLS# 97937. Bookend LendingMortgage Company is an Equal Housing Lender, Licensed by Massachusetts and the NH Banking Department . Mass Lender MC2289-119