Do you want to buy a home that requires a bit of work to fix it up? If so, you may be interested in a rehab loan to get the money you need to purchase and repair the home. Here are some things that you should know about this unique kind of loan.
Work With A Lender That Has Experience with Rehab Loans
It's always a good idea to work with a lender that has provided rehab loans in the past. Not all lenders specialize in these types of loans, which can cause problems to come up in the loan approval process. Working with a lender that has experience with the exact type of loan that you want is the best way for the entire process to go smoothly.
Use Approved Contractors
One thing that is unique about a rehab loan is that you have to use an approved contractor to do the repairs. This means that you can't do the repairs yourself or have a friend or family member do it for you. The lender wants to make sure that the home will be repaired properly and done to code, and they consider the best way to do this is by having renovation work done by approved contractors. That's why it's so important to make sure that you fully understand who you can use to make the repairs.
Work with a Seller That Will Give You Time to Close
Know that the process of getting your rehab loan approved can take longer than buying a typical home. This is because you need to have contractors come in and give estimates for the repairs, and those estimates need to be below the loan limits in order to get approval. If your seller is not willing to work with you during this longer loan approval process, then it may not be best to move forward with the purchase.
Get a Loan Contingency in Writing
Since rehab loans are riskier, it is always worth getting a loan contingency in the initial contract with the seller. That is because you want to be able to get your earnest money back if the loan were to fall through for any reason. Since you can run into issues when getting inspections and repair estimates, you want to have your bases covered so that you do not lose out on that earnest money due to an unforeseen problem.