What Are Rehabilitation Loans?

Rehabilitation loans are approved by the United States Department of Housing and Urban Development (HUD). HUD's purpose in making these loans available is to encourage people to retain ownership of their home. 

What Are Rehabilitation Loans?

A rehabilitation loan is taken out to improve, repair, or restore an existing, occupied structure. The loan amount is generally determined by evaluating the potential, post-improvement value of the home verses its current value. Even though the interest rates and closing costs on rehabilitation loans can be high, basing the loan criteria upon the home's potential worth allows loans to be made to those who otherwise would not qualify.

While rehabilitation loans are often taken out to repair property damage and restore homes in the aftermath of a disaster such as a hurricane or earthquake, they are taken out even more frequently to improve or upgrade a home.  Property owners seek rehab loans in order to enhance the value of their property or to facilitate essential quality of life improvements such as the removal of a hazard (i.e., radon, lead, or asbestos).  They may also want a new roof, or to replace old electrical wiring or old plumbing. Rehabilitation loans are also becoming a popular funding resource for rehabilitating a home's energy efficiency.

The term of a rehabilitation loan is typically anywhere from three months to a year. The borrower will submit an application to the lender. After the loan is offered and accepted, the final step is approval from HUD.

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