Rehabilitation Loans: Why They Are Good

There are several advantages to rehabilitation loans. They work differently than conventional mortgages and are particularly useful for homeowners who are interested in making improvements on their home, investment property or bringing a property up to code. Here are some of the benefits borrowers can obtain from taking out a rehabilitation loan for construction and repairs.

Rehabilitation loans eliminate the need for homeowners to pay immediately out of pocket for expensive repairs, renovation or restoration of property.

Under some rehabilitation loan programs, interest fees are waived during the construction period. This can last up to six months or more, depending on the program.

With the FHA 203k rehab loan program, certain project expenses can be included in the principle of the loan. These fees include permits, inspections and other costs.

Homeowners can borrow money to cover the costs of the repairs and upgrades. This is possible because rehabilitation loan amounts are not limited to the current appraised value of the property, but includes the potential equity the renovations will create.

Before rehabilitation loans were available, refinancing was one of the few options homeowners had in obtaining the funds needed for improvements. However, today, it can be less costly to take out a rehabilitation loan than to refinance with cash back.

In the long run, getting a rehab loan is better than taking out a line of equity on your property. This also saves the financial strain of waiting until the loan is closed for reimbursement.

There are some rental rehabilitation loans available that can cover the needed repairs on substandard units. These loans can help landlords meet legal requirements without having to spend the money immediately.

Health and safety corrections, security upgrades and municipal compliance upgrades can all be covered with a rehabilitation loan.

If you plan to sell the property, the agreement for your rehabilitation loan may allow you to wait until the sale is made before the balance of the loan is due.

Some rehabilitation loan programs allow the funds due to be amortized over an extended period of time, sometimes up to 20 years.

Smaller, low cost repairs can be covered under a rehab loan. There is no need to borrow more than you will use, therefore some rehab loans are available for simple upgrades.


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