What Are Rehab Loans?

A rehab loan can provide all the money needed to buy the house, PLUS all the money needed to renovate, rehab, or "fix up" the house.

If refinancing an existing mortgage, the rehab loan can provide all the money needed to pay off the existing loan, PLUS provide all the money needed to renovate the house.

In either case, the amount of the loan is based on the future, "after-improved" value of the property, which is why they are often a much more powerful financing option than traditional mortgages or home equity credit lines. (Please see below: “What’s So Special…”)

They can be used for single family homes and residential properties up to four units, and are available to owner-occupants as well as real estate investors.

Find out what type of rehab loan you might qualify for.

What’s So Special and Different About Them?

Rehab loans are extraordinarily different than typical “home improvement” loans.

Because of the special nature of rehab loans, they offer amazing opportunities such as:

1. They allow people to customize their home to fit more of their needs, thus they get the home they really WANT rather than what they can just afford.
2. They can allow people to buy a home for a down payment and monthly payment that is often far less than for comparable homes. Sometimes their down payment is ZERO.
3. The renovated home may have substantial equity. The home owner can create substantial wealth this way.
4. Real estate investors may be able to achieve greater investment results, buy more properties, and use less of their own cash.
5. Real estate agents can achieve better results by:
   • By working with buyers other agents can’t help, such as those that don’t have enough cash to buy a home with traditional financing.
   • They can work with difficult-to-sell properties far more effectively.
   • They can help people get a home that perfectly fits their needs
   • They can work with investors in tremendously powerful new ways.
6. Contractors can work with clients in new and more effective ways, while doing more, and larger, projects.

Rehab loans are based on the future, “after improved” value of a given property. Naturally, a newly renovated home may be worth considerably more than an otherwise similar home that still needs a little or a great deal of work. But because these loans are based on the future, “after improved” (and hopefully greater) value, these loans can make it possible to finance more money than typical home improvement loans.

Ordinary mortgages, 2nd mortgages, and home equity loans are always based on the current value of the property, not the future, “after improved” value. Thus, ordinary financing can’t possibly offer the amount of financing that renovation loans often can.

It’s possible to finance properties that are so badly in need of repair that traditional loans are impossible to use. For instance, water damage, fire damage, a faulty roof, ruined well, inoperable septic system, or mold problems might make a home impossible to finance by traditional means. It’s not required that a problem like these be present – the house may be in perfect condition, and a renovation loan could be used to add a bedroom or bath. But properties with these normally intractable problems can be bought and renovated with renovation financing.

Find out what type of rehab loan you might qualify for.

Can I Use Rehab Loans To Avoid Paying A Down Payment And Closing Costs, Out Of My Own Pocket?

Yes you can. When a homeowner renovates or improves their home, the value of it generally goes UP, often quite a bit.

This is possible because of the fact that the future, or “after improved” value of a home is often considerably greater than its value before the renovation. This large difference between current and future value (which can therefore create considerable equity in the home for the buyer) can be used to “wrap” many of the buyer’s expenses into the transaction. There are numerous techniques to accomplish this, including seller contributions, lender contributions, and non-profit down payment assistance programs.

The bottom line is that renovation financing makes these techniques possible in unique ways that can result in large sums of money saved, that would normally come out of a buyer’s pocket.

For instance, on the purchase of a $200,000 home, an owner occupant buyer could get up to $18,000, which could potentially pay for ALL their down payment and closing costs.

Investors can use some of these techniques as well, though often not to the same extent as owner-occupants. Still, investors could find ways to save thousand and thousands of dollars of out-of-pocket expenses using these techniques.

To get started fill out our 2-minute pre-qualification form.

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