With the financial stress that many homeowners are feeling, the challenge of being able to complete the work on homes in order to get a loan and close has become a big issue.
Kirkand, Washington Realtor® Karen McKnight advises that there are now some specialized loans available for “fixer-upper” properties.
“I know of a bank that does “portfolio” loans that include a rehab option in the loan. A “portfolio” loan is a loan that is held by the bank and is not sold on the secondary market, so it doesn’t have to meet FNMA, FHLMC guidelines.
Also, lenders that do FHA loans can often do an FHA 203k. In this loan, repair costs are built into the loan. On the FHA 203k there is a limited version for which I think the cap is $5000 and there is a full rehab version and I think the cap is $40,000. I know a few lenders who do both of these types of loans.
The structure of these “rehab” type loans is basically a loan to close the sale of the home and then a construction type loan attached. You submit bids and/or plans to the lender depending on the scope of the work and you are given a time frame in which to complete the work after closing.
The money for the work is distributed to you as the work is completed. On a larger loan, the lender will give you draws and may inspect the work after each draw before they will distribute the next draw.Source
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