Considering a Rehabilitation Mortgage

Not all mortgages are for purchasing properties. If you’re a buyer interested in a foreclosure or bank-owned property, a rehabilitation mortgage – also called a remodeling or home improvement loan – may be the best financing option not just for purchasing but also for fixing the property up. Although multiple types of rehabilitation loans are available, two of the more common ones are the FHA 203(k) and the 203(k) Streamline Rehabilitation Mortgage, both of which cover the cost of the property and repairs.

As with many loans, these two are 30-year, fixed-rate programs and require the borrower to fulfill certain credit, income, and employment standards. In addition, the property must be the buyer’s residence no later than one year from closing. The property, as well, is not for recreational, vacation, investment, commercial, or rental uses, unless it is an owner-occupied multi-family unit. Additionally, one of these rehabilitation loans can cover the cost of converting commercial property into residential. FHA 203(k) and the 203(k) Streamline Rehabilitation Mortgage, as well, are limited to specific types of residences: single-family home, FHA-approved condominium, or a multi-unit dwelling to be converted into a two- or four-family home. Neither can be used for a mobile home and cannot exceed FHA maximum loan limits.

Aside from these similarities, FHA 203(k) and the 203(k) Streamline Rehabilitation Mortgage cover differ sets of improvements, which must be $5,000 or greater. FHA 203(k) loans can be used for the following procedures:
• Structural alternations and repairs to damage, including termites and water
• Conversion of a single-family home into a duplex or a six-unit dwelling into a three-family home
• Installation of energy-efficient features
• Replacing wells, septic tanks, windows, or hot water systems
• Repairs to flooring, roofing, hand rails, downspouts, or exterior siding
• Handicap-accessibility improvements

203(k) Streamline mortgages have a different set of repairs. A limit of $35,000, however, has been placed on all possible projects:

• Improvements basement, the deck or patio, electrical system, floors, or HVAC system
• Minor remodeling
• New appliances (up to $2,000)
• New windows, painting, plumbing, roofs, septic or well system, a sewer hookup, or weatherization.

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