What is a Home Renovation or Rehab Loan, Really?

by Chris Esposito
With the recent flood of foreclosures on the market, you’ve probably already heard some of the talk about the boom in home renovation loans or home rehab loans. But, there is a lot of misinformation out there about these financing products. Before deciding if it’s right for you, step back a moment and get a firm grasp of what a home rehab or home renovation loan really does.

For the purpose of this article, let’s use the term home rehab interchangeably with home renovation. Some people consider a rehab to be a larger project with full structural repairs or additions; whereas, a renovation may fall more into the category of minor improvements. For these purposes, however, the difference is negligible, as either term can be defined as any project in which a person fixes up their home with repairs or additions.

The most important thing to remember about a home renovation loan is the overall structure of the financing. In the past, a person who wanted to make improvements to his home would take out a second lien on his property. Nowadays, however, home equity loans and second mortgages in general are more and more difficult to get.

Despite the tightening of the mortgage industry, people still need loans to fix up their homes. In fact, with the huge numbers of foreclosures and other less-than-perfect houses available on the market today, people need home rehab loans more than ever. The good news is that home renovation loans still exist as great mortgage products today – you just need to understand the structure of them.

In today’s market, the best home renovation loans will wrap the costs of the renovation into one single mortgage. Gone are the days of the second mortgage. So, what does this mean to you if you want to fix up the home you live in? It means that you will have to refinance into a home rehab loan.

Refinancing into a single mortgage that covers the payoff of your current loan and the renovation costs of your rehab will be a real blessing for most Americans right now. Interest rates are at historic lows, so people who do need a home improvement loan can take advantage of this opportunity to lower interest rates. And, for people who are currently stuck in an adjustable rate mortgage (ARM), these home renovation loans are the perfect chance to get yourself into a simple, safe fixed rate mortgage at low monthly payments.

But, what if you are currently renting and want to take advantage of all the homes on the market? After all, it is a buyer’s market right now, which is why so many homeowners are opting to fix up their houses instead of trying to sell. Well, the good news for people who want to buy is that the structure of a home rehab loan today will fit perfectly into your plans to find the perfect home for your family.

When you consider all of the foreclosures on the market today, you can easily imagine all of the great deals you will find on houses that might need a little work. Foreclosures typically are left in less-than-perfect condition. Fortunately, a home renovation loan will allow you to find that great deal on the market and fix it up to be the perfect home for your family. What’s even better is that the entire purchase and renovation will be wrapped into a single loan.

Probably the best example of this type of financing is the FHA 203(k) program. It is a government insured loan program offered by a few select lenders around the country. What makes the 203(k) so special? Not only is it a flexible loan to help lots of people qualify, but it also has a lot more capital to lend compared to most other loan programs out there. The more liquid a loan program is, the more competitive the rates and terms will be for you, the borrower.

So, when you think of a home renovation loan or a home rehab loan today, don’t think of second liens or home equity loans. Instead, understand that the financing will wrap the entire project into one single mortgage for you, which will provide lower rates and better terms overall.

If you’re concerned that you don’t have the knowledge or skill to fix up a home, then you can relax and rest assured that the home renovation loans of today are designed to protect you. For instance, if you are doing a major rehab project that involves structural work, the FHA 203(k) program will assign a consultant to assist you with the planning and coordination with the general contractor.

What’s the moral of this story? You don’t have to be an expert tradesman to fix up your home with a rehab loan. Anyone who wants to improve their house to make it the right home for their family can take advantage of a home improvement loan or home renovation loan. It takes a little planning and a basic understanding of the overall structure of the home rehab loan financing.

Chris Esposito provides home renovation loans through the Direct Rehab Loans program, which you can find at www.DirectRehabLoans.com. The program is a service of CM Direct, Inc. You can call (877) 876-3688 for more info about home rehab loans.

Article Source: Article Junction Network