Credit Loan > Home Loans > A Home Loan for That Fixer-Upper

Remodeling Home Loans

So, you have found a home to buy, it is in a good school district, close to work, and you like the neighborhood. But it needs a little work-- maybe it needs a lot of work. You will not only need enough money to buy the home, but you will need help with costs for all of the repairs too. How are you going to find a lender that will give you a home loan that you can afford?

The good news is that you can still get a federally insured loan for this type of home. The Federal Housing Administration (FHA) insures a special class of home loans called the 203(k) through their SF Rehabilitation Loan Program. Not all lenders are willing to do a 203(k) mortgage, or remodeling loan, but with a little research you will be able to find one that will. These mortgages are only for people who will be living in the homes they purchase, not for real estate speculators that are trying to flip properties.

Once you have zeroed in on the home you wish to buy, the first thing to do is to get together with your real estate professional and figure out if it is going to be feasible to rehabilitate. Your contract should state that you are seeking a 203(k) loan, and this step is contingent on approval for that type of loan.

Next, you will need to find a lender to work with. Arrange for a detailed cost proposal for the repairs to be done, because they will need this to figure out how much to loan you. An appraisal will also have to be done to determine what the value of the home will be after the renovations are complete. If the appraisal is less than the cost of the home, plus the cost for the repairs, it is not likely that your loan will be approved-- but this can give you some bargaining power with the seller to reduce the purchase price of the property.

10% to 20% will be added to the construction costs estimated for the loan to cover any unexpected expenses. After closing the repairs can begin, and the contractor will be paid out of an escrow account set up for this purpose. If the home buyer will not be living in the home during construction, he or she can choose to have up to six months of mortgage payments go toward the rehab, but this period can not be longer than construction is expected to take.