This house is perfect, but I can't afford to buy it and fix it up. Are there anyhome loansthat will lend me the money upfront to dothe work? Selling mostly in central Denver, I show a lot of terrific homes that have amazing potential, but I know I certainly wouldn't want to live in them as is. Itherefore get this question a lot andhavehad a lot of buyers walk away from great homes because the expense to fix it up is just to great.
Luckily, there is a great home loan program forbuyerswho are willing to takea fixup on, but need to borrow money upfront in order to doso. This loan program is called a 203K, or Rehab loan. The 203K is a product of FHAand inalmost every way, functions just like a standard FHA loan. Thedifference is that it allows you to borrowmoney on top of the purchase price of the home to make improvements to the home.
For an example, let's say the purchase price of the home is $200,000. If the home was fixed up though, it would sell for $250,000.So as long as it appraises for this amount, and you canqualify up to $250,000, you could technically borrow an additional $50,000 to improve the home.You would then have only one loan $250,000 andlikeall FHA products, could lock in your rate for 5, 15 or 30 years. The interest rate for this type of loan is going to be a little higher, about .5% higher than a standard FHA rate. But it is significantly cheaper than the cost of getting a line of credit or home equity loan which would be in the 8 to 10% range and you would get the $50,000 upfront to do the improvements the house needs.
There are very few limits on what you can use arehab loan for. Need a new kitchen, baths, appliances, carpet, garage, landscaping, you name it, it is possible if it adds value to the home. There are evenrehab loans available for second homes and investors.
The process of getting a rehab loan is going to be more time consuming and labor intensive than your standard loan. But if you think about it, it should be. The lender wants to make sure the extra money they are lending is used wisely, as they should. After meeting with a lender who only does these types of loans, and seeing that his success rate is just as high or higher than most lenders with standard loans, it is definitely an option to consider.
And sellers should keep this in mind too. If you keep getting feedback that every buyer loves the house, but wants a garage or new kitchen, then advertise the possibilities of this type of loan. Perhaps even offer to pay discount points for the buyer so the interest rate is the exact same as a normal loan, and then the buyer can customize the house as they want. What buyer wouldn't love that?
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