Talking About Loans and Financing

Fixer-Upper? 5 Reasons To Choose A Rehab Loan, Not A Mortgage

Do you need to complete major house renovations? No matter whether you plan to sell the home for a quick profit or you may live in it once it's been rehabbed, don't assume that a regular mortgage is the right call for financing. Why? Here are a few important things to know about dedicated construction rehab loans

1. It Simplifies Things

If you plan to finance your renovation through a traditional mortgage, you'll either need to borrow extra money or take on a second loan of some type. However, any of these choices will mean more paperwork, more approvals, a long process to get your money, and likely multiple loans. Rehab loans are targeted to fixer-upper needs and so they streamline both qualification and disbursement. 

2. It Has Lower Down Payments

No matter which mortgage you choose, you'll need a down payment. Many traditional mortgages for either a primary home or an investment home require up to 15% or 20% down but rehab loans are much more flexible on terms, and often call for as little as 3.5% down payment. 

3. It Follows Construction Needs

Because a rehab loan is designed to manage construction work, it has multiple payout options. A regular mortgage is distributed once at the beginning of the loan. However, construction rehab loans are distributed as the work reaches certain milestones. Because you control how much money is spent and when it is spent, you control your mortgage payments throughout the life of the work. 

4. It Works With Investment Properties

Traditional home mortgages are created for homes used as the primary residence. But if your project is an investment home, you may not qualify for those. Seeking a commercial or investment property mortgage may be more expensive and more complicated, so an excellent answer is a product that crosses the line between the two: a rehab loan good for primary homes, business investments, and multi-family properties. 

5. You'll Refinance Anyway

The need to refinance a rehab loan if you keep the property for a while may turn off some borrowers. However, many homeowners end up refinancing in a short period of time anyway. The reason? The huge increase in post-renovation home value. If you can tap this boosted value, you can get rid of mortgage insurance, simplify loans, and take cash out. So, if you're probably going to refinance after the trouble of getting a regular original mortgage, save yourself the trouble and build that into your plans. 

Where to Learn More

Want to know more about construction rehab loans? Start by consulting with a lender in your area today. With their expertise, you can find a product that helps you finance your dream — no matter whether it's a quick sale or a dream home.