Rehabbing a home might seem like a breeze on HGTV, but there are a few things that you need to know about purchasing a rehab property.
A lot of people watch HGTV and decide that they want to do a rehab and create the home of their dreams. Unfortunately, many people do not know how to actually buy a rehab property. Most people will say to me, “I was approved for $100,000 and the house is only $50,000, so I will have plenty left over to fix up the property.” When you get pre-approved for a mortgage, that is not the same loan that you need for a rehab property.
Let’s say you like the floor plan of a home but you don’t like the kitchens or bathrooms so you want to redo the property. That’s great! You will probably end up with a great deal and have a lot of equity at the end. However, let’s say that the house is $100,000 and sitting in a $140,000 neighborhood. In that case, the house is already priced for the condition of the home. You can get a $2,000 or $3,000 rehab loan to get the home where you want it to be, but the seller will not sell you the home at $50,000 or $60,000 because they have already discounted the property according to its condition. You really need to consider what you are looking at and the home prices in the neighborhood.
Other people want to use rehab loans simply because they want to redo a $250,000 house. They want to change the layout, knock out some walls, and redo the kitchen. The thing is, that’s not the seller’s problem. If you don’t like the house enough to make an offer and do the updates that you want, then it’s not the seller’s responsibility to come down on the price for you.
If you want to do a rehab, then you need to have your contractors in place. You need to know your costs and figure out if the changes you want to make are doable. For example, what kind of kitchen do you want? Will the kitchen fit into the home? A lot of rehab loans require that you submit a bid from your contractor with your offer. Someone from the bank will make sure that those numbers line up. You also need to make sure that your contractor is insured and has the resources to get your rehab done.
If you want to replace the windows or do a basic kitchen remodel, then you can look into a stream loan. These are useful when you like everything about the house but you just need to make a few tweaks to turn it into the home of your dreams.
Ultimately, you need to make sure you have your lender and contractor lined up right away when purchasing a rehab home. If you have any other questions about rehab properties, just give me a call or send me an email. I would be happy to help you!