When you can buy a house that requires a little extra care to restore it, you only need to apply for a conventional rehab loan. That way, you won’t have to pay a lot of money to renovate the affected areas of the house. However, you must check if you meet the requirements to apply for this loan.
What is a conventional rehabilitation loan?
Conventional rehabilitation loans, also known as renovation loans, are a type of mortgage loan to make it simpler for customers to purchase a home; you can buy a home that requires improvements and have the means to fix it.
You will be offered funds for the purchase and repair of the property according to what the appraiser or the borrower indicates and considers prudent. You can apply for these loans to finance primary residences, investment properties or second homes.
To obtain a conventional rehab loan, you must contact private lenders, such as Land Run Mortgage. They are responsible for financing structural and cosmetic improvements planned for a home.
They will give you the contacts of the professionals, plumbers and other professionals in charge of the renovations with whom they have agreements. Among the most common such loans are the HomeStyle Renovation loan Fannie Mae offers.
Requirements for a conventional rehab loan
To begin with, these are not government-backed loans like FHA and VA loans, so they have higher and more complex qualification requirements. It’s essential to find teams that will make your job simpler.
For example, Wendy Thompson’s team simplifies the application process, mainly by asking for a down payment of about 5% of the total amount to get started. Most lenders ask for this down payment, and the vast majority ask for up to 20% to get started.
In addition, your credit history must be excellent; before you are approved, the team of experts will evaluate your credit history and credit score. If you do not have excellent credit, they will still consider you to assess the reasons.
Another element that lenders will check is your monthly income to determine if it is adequate. The basic requirements are to have a good income and a good track record, which will indicate to lenders that you will have the means to make the payments.
What are the steps to obtain the loan?
As we mentioned before, first, you must pay the down payment, which can go from 5% to 20%; everything will depend on the company and your credit situation. At that point, the lender and contractor will start working together to develop the work plan.
They will work on the basis that the home’s value will increase, make all the necessary repairs and add good materials to achieve the goals. To start with the repairs, an appraiser will evaluate the home; this step is essential for the direct lender to define the loan amount.
To complete the application, you must provide all the necessary documentation; this will be proof of your income, assets and credit scores. Even if approved, the process may take 60 to 90 days to complete; this is the time needed to verify all the information.
When the down payment on the loan is less than 20%, you will need private mortgage insurance, the price of which will change according to the down payment, the credit rating you have and the value of the home.
Once you have all the documents, they will tell you the time frame you have to make the renewals; most lenders request that it be completed in no more than six months. If you require more time, you can order it with the loan company and wait for their approval to begin the work.
It is impossible to begin renovations until the loan is closed until the seller has the necessary funds to start the work. However, the delivery of the funds will be made by the schedule previously prepared by the contractor.
At this point, the site inspection should have already been carried out, and all the faults to be renovated in the house will be known. If any problems occur, it is essential to notify the lender immediately.