In a nutshell:
A "fixer-upper" loan designed to help buyers finance older homes that need major repairs such as structural repairs and/or remodeling, but not luxury upgrades like adding a swimming pool or tennis courts. You can use the loan to fix up the house, add a second story to the building, or use it for energy conservation upgrades like new roofing and new appliances.
Lenders will want a itemized list of the needed repairs.
- A rehab loan lets you buy a home that lenders might otherwise deem “uninhabitable.”
- The loan covers the cost to purchase the house and do the renovations.
- It often includes a 20% reserve fund in case repairs exceed estimates.
- The down payment is lower, and you can find excellent interest rates if you shop several 203k lenders.
- Not all properties are eligible.
- Applying for a rehab loan is complicated -- you’ll need to hire a consultant.