Rehab Loans: Mortgage Financing for the Fixer-Upper

By
Mortgage and Lending with Your Tampa Bay Mortgage Source

MoneyA bank owned property in Tampa, Florida; Foreclosure sale in Clearwater, Florida; For Sale by Owner in St. Petersburg, Florida...what do they all have in common?  THEY NEED WORK!  If you are a buyer, a seller or a Realtor and are faced with a home that needs a little "TLC"...There's a solution!  Tampa Bay Florida buyers can now utilize rehab loans.

What is a Rehab Loan? 

 This is a mortgage which allows a buyer to finance the cost of repairs into the purchase price of the home. Put more simply, this mortagage allows you to wrap the costs of the home plus the cost of repairs into one loan.  The bonus to this type of loan is the work doesn't have to be completed at the time of closing, the work is done after the closing has occured.

How Does The Rehab Loan Work?

 Say you are interested in purchasing a home that has some issues that wouldn't pass for conventional loan financing.  Perhaps there are drywall issues; maybe the home needs new flooring or new windows.  A rehab loan allows the buyer to have access to the funds to complete the work after closing.

Give Me an Example of a Rehab Loan

 Mr. and Mrs. Homebuyer are interested in a home in Tampa.  The home is a bank owned property, thus the bank is not willing to make any repairs prior to closing.  Upon inspection, the Homebuyer's find they have two walls that are missing drywall.  As your lender, I will have a contractor give us a quote for the repairs and we will include that cost into the loan.  After closing, the contractor will complete the repair and we will pay him from the designated funds. 

Can I Use a Rehab Loan for Cosmetic Repairs?  

 Absolutely!  With certain types of these rehab loans, you can use funds for carpet, tile, windows and even appliances!  This is a perfect option for first-time buyers who are don't have the extra funds for the "feel good" home improvements.  Just imagine what $10,000 or $20,000 in available funds can do to that special home!

I need to sell my house, can my buyers consider a Rehab Loan

 It's very possible.  The biggest factor is what type of work needs to be completed.  When we send out our appraiser, the appraisal is done on a "subject-to-repairs" basis.  As long as your home will appraise for the purchase price + repairs once they are done, then this could be a great option for you!  Feel free to contact me if you are interested in offering this option to buyers.

How Do I Find Out if I Qualify for a Rehab Loan

 It's easy to find out if you qualify.  If you are interested in purchasing a fixer-upper property in Tampa Bay, Clearwater or St. Petersburg and need a way to finance the cost of the repairs, contact me at LRoss@Amerifirst.com for a complimentary pre-approval.

~Visit my Tampa Mortgage Blog for more information on Rehab Loans

Comments (23)

Mark Cole
Realty World Executive Group - Orange Park, FL
CRS

Hi Leah,'

My preffered lender just brought up those programs at our monthly agents meeting.  The agents were excited because that gives us a good tool to use in the more historical parts of town.  It is also good for some of the older homes with good bones.  Good post.

Jun 24, 2007 12:09 PM
Neal Bloom
Brokered by eXp Realty LLC - Weston, FL
Realtor CRS-Weston FL Real Estate

Hi Leah,

Sounds simular to an equity line on my primary and use it if need be for repairs or renovations. But your would be a great source for investment or first time homebuyers.

Jun 24, 2007 12:13 PM
Freddie Castaneda
Beechwood Realty - San Jacinto, CA
San Jacinto Valley Real Estate

Leah, great post.  i was wondering if they have rehab loans here for california?  if they do then i can offer that for many of my clients who are interested in flipping.

Jun 24, 2007 12:22 PM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage

Cyndee, thanks for the comment.  Thanks too for creating the new group...how do I post my old blogs to the group?

Tom, great to be back!!  One crazy week done and here comes another one!  Yes, these are wonderful loans and not too many LO's use them or think of them as a solution.  This is what made me inspired to bring it up.

Andrew, yes I can give you some insight.  The easiest and best use are FHA 203k loans.  Any lender that is able to write FHA loans should have an outlet for the rehab program.  Fannie Mae also has a program available to lenders.  The hurdle to overcome is finding a lender who is experienced in the nuts and bolts of the qualification.  Check with your regular mortgage companies that write FHA and conventional loans in house, they may be able to do it or add it on to their current programs.

Mark, woohoo!  Lucky you to have a great lender that has the program available.  Your agents are right on the money, it is a great way to give vision to a home that is lack-luster.

Neal, the benefit of a rehab loan is the home doesn't need to appraiser for "as-is" value or a home that needs work to qualify that the seller isn't willing to complete.  The rehab loan covers both these cases where an equity line may not.  You are right though, it is a great source for first time buyers who need the funds for repairs!!  Thanks for your comment!

Jun 24, 2007 12:27 PM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage
Freddie, these loans are available through convential and FHA financing.  However you will find that most are for primary residences and not investment properties.  Great question!
Jun 24, 2007 12:44 PM
Katrina Madewell
Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196 - Tampa, FL
Tampa FL Homes for sale | Tampa Bay - (813) 777-1196

REALLY Great Post Leah! 

This is the type of loan program that's been around for a while, so the newbies don't really know about them, and they kinda get burried in the hay during crazy market times like we have had.  You're posts are always so Right On Time.

Jun 24, 2007 06:34 PM
Susie Roscoe
Signature Realty Associates - Brandon, FL
Real Estate Specialist | Brandon, FL
Leah - this is TERRIFIC INFO!!  With all the short sales and foreclosures there are surely to be homes that are great opportunities but need some work and will need this money.  THANK YOU for the terrific info!!
Jun 24, 2007 09:37 PM
Chris Griffith
Downing-Frye Realty, Bonita Springs, FL - Bonita Springs, FL
Bonita Springs Listing Agent
Is there a figure, an amount, that a rehab loan is limited to.  Either dollar figure or percentage of the home value?  (I know of a home that is just beautiful, but the owner has removed the kitchen cabinets and not replaced them. )
Jun 24, 2007 11:45 PM
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Leah,  This was such a great post..I am glad a subscribed to your blog. 
Jun 24, 2007 11:56 PM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage

Susie, thanks so much for the comment.  You are right that in this market with the number of bank owned properties, it is a good tool for the tool box!

Chris, GREAT question!  There are two main types of rehab loans.  First is an FHA 203(k), second is a Fannie Mae HomeStyle Loan (disclaimer: other mortgage companies may have more options too!).  With an FHA 203(k), repair costs are limited to $35,000.  The only thing with the FHA loan is the loan amount has to be at or below FHA loan limits, which are different from county to county...you can check your local loan limits at HUD's website.

With the Fannie Mae HomeStyle loan the maximum amount of rehab is 50% of the as-completed value.  You don't have the lower loan limit issue you do with FHA. 

Matt, thanks for the comment!  Glad you are a subsciber ;-)

Jun 25, 2007 01:00 AM
Chris Griffith
Downing-Frye Realty, Bonita Springs, FL - Bonita Springs, FL
Bonita Springs Listing Agent
Hmmm.  I also found a home several blocks from mine that is more or less gutted and wondered about this sort of loan to rehab it.  
Jun 25, 2007 01:03 AM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage

Chris, typical projects for rehab loans are kitchens, bathrooms, painting, carpeting, additions, windows, siding, plumbing, heating, patios/decks...and the list goes on.  Most repairs are acceptable as long as they become a permanent part of the property. 

ALSO: Certain "soft costs" are eligible like inspecitions, engineering fees and permits...

Jun 25, 2007 01:55 AM
Neal Bloom
Brokered by eXp Realty LLC - Weston, FL
Realtor CRS-Weston FL Real Estate
Hey Congrats you might not know it but you were featured on localism!
Jun 25, 2007 04:12 AM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage
Neal, thank you for letting me know! Woohoo!
Jun 25, 2007 04:38 AM
Cyndee Haydon
Charles Rutenberg Realty - Clearwater, FL
727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes
Leah - what great info - I know a lot of people that can benefit from this - thanks for explaining it so well.
Jun 25, 2007 03:04 PM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage
Cyndee, thank you for the comment!
Jun 26, 2007 06:53 AM
Jack Haydon
Charles Rutenberg Realty - Clearwater Beach, FL
Clearwater Beach Condos - Real Estate Homes for Sale

Leah,

With the foreclosure market heating up, I bet we will be using this in the near future.

Jack 

Jun 27, 2007 03:30 PM
John Evarts
Classic Property Management of Santa Clarita - Santa Clarita, CA
Got here from Chris's fixer post. Very interesting info. I will have to check into it. Thanks for sharing some good useful info.
Jun 29, 2007 07:32 AM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage

Jack, I agree...I have already discussed this with 2 borrowers this week.

John, thanks for stopping by via Chris!!

Jun 29, 2007 11:28 AM
Anonymous
marla

me and my husband have recently found an old farm house in the location we wanted. which by the way i am in alexandria indiana..anyway we applied for this home with a rehab, got approved, the lender told me to go ahead with the withdrawal from my 401 k for our down payment...they sent the appraiser out to appraise the value upon completion of the repairs.. he said he couldnt find any comps to compare it with, within 2 miles.. so now they tell us the loan cant go through because of this.. what good is rehab loans if you have to have a comparable and there is none within this radious.. to me the house is basically worthless without this type of loan to put into it. we are some people willing to make an older house a very nice home, but are up against a wall when it comes to getting the whole loan financed.. to bad for the older

 

homes that could be quite beautiful when restored.. to me i think that is a ridiculous rule for any one willing to do such hard work to make a nice home for themselves.

 

   thank you, marla

 

 

 

 

 

 

 

 

 

 

 

Nov 07, 2007 01:31 AM
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