You might have choices, lots depends on your strength, credit, the property, the work etc.
Easiest way to explain is with an example:
House priced at $200k
Repairs estimate of $10k
The purchase price will be $210k. The seller receives $200k and the $10k different is put in escrow.
Things to remember:
1 - the house has to appraise for the $210k after repairs.
2 - the $10k will be released directly to the contractor(s) doing the work.
3 - borrower to obtain the repair estimates during the loan approval process.
I hope this helps.
It is also Best if you use a Lender that have several Contractors that has done this type of Loan before as the Contractor does not get paid until after you have Closed Escrow. I have several Lenders with Contractors that are very experienced, please let m eknow if you would like there information.
Have a GREAT day!
Vivien L Biggs, PLC
Prudential Arizona Properties
There are great explanations below. I have assisted buyers working with a rehabilitation loan and I am very familiar myself. If you have additional questions just give me a call I am happy to discuss them with you. Tiffany : )
Realty One Group
Awarded one of the Top 40 Agentâ€™s Under 40 in 2013
I would also add a couple of things...
If you're talking about an FHA 203(k) loan, then the work MUST be done by an ROC licensed contractor and not yourself or your friends/family (unless their ROC licensed of course).
That's why it's sometimes best to use a general contractor for the work as he/she can then 'sub' out some of the work under their license if they cannot do it themselves. I have an excellent general contractor who has done a LOT of renovations and rehabs for my clients over the past few years. He's also done a couple of the FHA 203(k) rehab properties and can provide the bids that the lender needs to approve the loan.
Typically these loans needs a bit more time to close depending on the lender (maybe an extra week or two) but that's not usually a problem unless the seller won't allow the extra time.
With this type of loan, there is admittedly more work for the buyer and seller and their respective agents (as well as your lender), but it can be a great way to 'finance' the needed repairs to allow you to purchase a home.
First things first, you'll want to get pre-approved with a lender before you begin shopping for a home. I have some excellent local lenders that I've worked with for several years; just send me an email and I'd be more than happy to provide their info.
Also, keep in mind, if you're gonna go with that FHA 203(k) loan or just a regular FHA loan, you'll need the down payment (3.5% of the purchase price) AND funds to cover your closing costs (typically around 3-4%, depending on the purchase price). Some of those closing costs can be paid by the seller IF you're able to negotiate that into the contract.
Once you're pre-approved for a new home loan, then you can begin previewing homes. I'd love to help you find a great home here in Phoenix! (FYI...the fee to use a buyer's agent to help you find a home is paid by the SELLER, not YOU, the buyer. Your fees include things like title/escrow fees, lender fees, inspection fees, etc).
Check out my Trulia profile at: http://www.trulia.com/profile/jimmitchell/ . I've helped several buyers find homes here in the Valley for over 8 years.
Thanks for the question!
Realty ONE Group