When is a Rehab Loan or 203K Loan Needed?
A rehab or 203K loan is insured by FHA and is available when a home is in disrepair or has become uninhabitable. It is essentially the same as a conventional loan, with a fixed interest rate and a term anywhere from 10-50 years.
The benefit of this type of loan is that the amount is based on the value of the house when it is fixed, with the extra money placed in an escrow account to complete the necessary repairs. An example would be a home priced at $200,000, but with a repaired value of $250,000. The bank would give you the loan for $250,000 and put the remaining $50,000 into an escrow account.
It eliminates the difficulty in obtaining financing due to the condition of the property when buying the house. Also, you avoid having to secure financing or save up to complete the repairs after the purchase is already complete.
This type of loan is very popular for REOs or bank owned properties. Many of these homes were vacated as a result of foreclosure and/or eviction actions. The homes are often in disrepair and some have been vacant for long periods of time leaving the property vulnerable to vandals or the elements.
There are some conditions and limitations you should be aware of when considering this type of financing. The money held in the escrow account is not available to you as the homeowner and you can only complete the repairs yourself if you are properly qualified and are prepared to be subject to the bank required inspections. The funds will remain in the established escrow account and be paid in draws directly to contractors who finish the work, with inspections conducted throughout the process, as well as pre-determined time frames that must be adhered to. The benefit of this is that the bank will often act as the mediator between you and the contractor to ensure that their money is being put to good use.
Island Advantage Realty
Island Advantage Realty, LLC has established itself as an innovator and leader in the REO market throughout Metropolitan New York and Long Island. With 20 years of experience handling foreclosed and residential properties, you can rely on our knowledgeable team of agents to assist you with all of your Real Estate needs. Trust the experts. Trust Island Advantage.
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Buying a home in today's marketplace is a bit intimidating. And your new home purchase is likely to be one of the most important decisions you've ever had to make. Usually it's one of the single most valuable assets you'll own.
