Design your own Dream Home
With Rehabilitation Mortgage Financing
By: Raleigh Jenkins

Unless you’re rich enough to have one custom built for you, one of the first things you’ll notice when you venture out to buy a home is that the available homes on the market weren’t built or maintained specifically with you in mind. You will probably begin to feel like the square peg trying to fit in a round hole as you go from open-house to open-house, never quite feeling right about the properties.

Some will come real close.

They’ll be in the right neighborhood. They’ll be just the right distance from the relatives - far enough away from some, close enough to others. They’ll be near the favorite school. You will find yourself saying, "This house would be perfect, if only…"

"…It had a finished basement... It had a second bath, or a second floor... The existing bath wasn’t pink and black tile… It had a new roof… It had better windows… The kitchen was more modern… It had a garage… The heating, plumbing or electrical systems weren’t so old… It was better insulated…It had new carpeting, or tile flooring, or finished hardwoods… It had fresh paint or vinyl siding…"

So, off you go, in search of your Dream Home…

It may be a month or so later, but, if you are like most buyers, you will eventually return to one of the original homes, or another, similar to it, and make an offer. You will have lost your original excitement about buying a home, and will probably be resigned to the fact that this is the best you can do in a market not specifically geared to your desires and expectations. "What else could we have done?", you say to yourself…

You could have done some more homework before setting out!

Sometimes the type of financing that you use can make a world of difference in the outcome of a real estate transaction. In the above examples, "rehabilitation financing" would have allowed you to customize many of the houses to more exactly fit your needs and preferences.

Rehabilitation Financing, like FHA’s 203(k) Rehabilitation Mortgage Program, and Fannie Mae’s Homestyle Rehab Mortgage Program, allows a buyer to purchase a home in need of rehabilitation, improvement or modernization and perform the improvements post-closing. The programs provide both purchase money and improvement money in one mortgage with one closing. The loan amounts are based on the after-improvement value of the property.

Not all Realtors are knowledgeable in rehabilitation financing and not all lenders offer it. But it may be in your best interest to learn more about it, since it could allow you to convert a "somewhat desirable" property into that Dream Home you imagined. The example below shows how the application of rehabilitation financing could successfully change a commonly discouraging scenario into a rewarding experience:

An Example of Applied Rehabilitation Financing:

You begin your house search in the desired neighborhood. You attend an open house. The property is just the right distance from the relatives - far enough away from some, close enough to others. It is near the favorite school. You find yourself saying, "This house would be perfect, if only it had upgraded plumbing, heating and electrical service , new windows and a second bathroom…"

You ask the Realtor what a house just like this one would go for in the current market with the proposed improvements. You are told that those improvements would improve the value of the property, it would be worth more than the current asking price.

Your next stop is to a qualified specialist in rehabilitation financing. You ask to be pre-qualified for a property based on the current sales price plus the improvements. You learn that you will qualify subject to normal credit considerations and an after-improvement appraisal of the property. You negotiate an "as is" sales price and sign a Purchase & Sales Agreement to buy the property subject to a rehabilitation mortgage application.

If you are approved, at the closing, the seller is paid in full and the improvement funds are placed in an interest bearing escrow account to be released subject to the successful completion of your proposed improvements.

Post-closing, within a month or so, the construction is completed and the transformation of the "almost" property into your Dream Home is finished. It wasn’t your Dream Home when you first viewed it, but it is now! You have successfully used Rehabilitation Financing to its fullest value.

So, if you are currently looking for a home, and you know for certain what that home needs to be to make you fully happy with it, you may benefit by learning more about Rehabilitation Financing before you hit the streets. That way, if the "suit doesn’t quite fit", you can tailor it yourself!