Rehab home loans are a means of refinancing a house to get cash out and to do extensive repairs to the home, thereby improving the property value. There are various lenders to choose from, but an option to explore when seeking a rehab home loan is through the Department of Housing and Urban Development. The assistance programs offered by HUD are under section 203(k) and will provide for reconstruction of a house being newly purchased or an existing owned house that will be refinanced to put the agency as the first mortgage holder.
Applying for this type of assistance program will include the involvement of consultants who work for HUD; appraisers and inspectors to secure two values - "As-is Value" and "Value after Rehabilitation"; the mortgage lender, contractor, and a plan reviewer; the borrower, and HUD. Qualifications of the renovations required to secure rehab home loans for the one to four family dwellings have a set minimum of $5,000, and must comply with Cost Effective Energy Conservation Standards. A rehab home loan can be used three ways: to purchase a property with an existing dwelling that will be renovated or reconstructed; to purchase a dwelling on one site and move it to an existing foundation and rehabilitate it; or to refinance and existing mortgage and rehabilitate the dwelling.
These loans will cover the following rehabilitations: structural alterations and improvements; changes for improved function and modernizing; health and safety improvements; aesthetic appeal and removal of outdated structure; replacement of plumbing, including connection to sewer systems; installation of well and/or septic system; roofing, flooring, and energy effective improvements; landscaping to protect the property; and handicap access. Once the major work to be covered by the rehab home loan meets the $5,000 minimum the following can be included in the excess amount financed: repairs to a swimming pool, new free-standing appliances, and painting of interior and exterior surfaces. "Be ye strong therefore, and let not your hands be weak: for your work shall be rewarded" (2 Chronicles 15:7).
Assistance set up through the HUD Section 203(k) must include Architectural Exhibits that specifically demonstrate the work to be done for the coverage. These exhibits will include a plot plan if a new addition is anticipated, a proposal exhibit of the interior if renovations or additions are to be done, or an official write up and work estimate to be done by the contractor. Rehab home loans for HUD are financed as FHA loans and require mortgage insurance that will include coverage of the cost of the fees and inspections and exhibits.
Considering the use of a HUD rehab home loan is especially wise when a borrower has an outstanding mortgage and the dwelling is the last thing to be taken care of with the household income. Losing the value of one's home is damaging to the property value as well as is a liability to the homeowner's insurance coverage which expects the insured property to be maintained for continued coverage. Rehab home loans are a viable option to retain or rebuild property value.
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