How to Fund Your Fixer Upper – An Affordable FHA Rehab Loan

There is an FHA rehab loan option that works just like a normal 30-year fixed-rate loan. Most first time home buyers won’t realize that this is really exceptional, but it is!

I spoke with a lender today who specializes in these loans, and it is actually relatively simple and there are few restrictions. The loan amount (finished value after your rehab) cannot exceed $271,050. You can include your appliances, but you cannot install a pool or a tennis court with the rehab money. The loan fees are modest, the seller is allowed to pay the buyer’s closing costs, and the buyer can choose any licensed and insured contractor of his or her choosing. As with any FHA loan, the minimum down payment is the very affordable 3.5%.

My (simplified) 8-Step Process for Buying a House with an FHA203k Rehab Loan:

  1. Find a house that you love and want to live in, but that needs updating. This can be a refinance of the home you currently reside in, or a new purchase.
  2. Determine the home’s potential, an estimated cost of the work needed, and the expected market value of the property after the work is completed.
  3. Make an offer.
  4. Work with a contractor to draw up bids and plans.
  5. Work with your lender to have the house appraised to determine the projected value of the finished/rehabbed property.
  6. Buy the house.
  7. Rehab commences. Your lender will set up a bank account with the rehab funds. You will use this to pay the contractors.
  8. Move in!

As with any loan – do your homework, get more than one opinion, ask questions and be a good advocate for yourself. It is wonderful that we have this option for accessible rehab funds, but make sure it is the right choice for you and your family.

*SELLER TIP: Need to sell your home but think it could benefit from some updates or renovations? Would these renovations increase the market value? If the answer is yes, then market your home as a good candidate for a FHA203k Rehab loan. It may increase your buyer pool.

About the Author

Sarah Snodgrass is a residential real estate agent specializing in Kansas City's historic neighborhoods and enclaves.

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