Questions to Ask Before You Commit to an FHA Rehab Loan
November 24, 2023
Want to build or improve a home with an FHA mortgage? Any home loan that involves construction or remodeling can be more complex than a standard FHA purchase loan or FHA refinance loan option.
But the results are worth the effort for many borrowers, and those who get the most of their rehab loans typically ask some key questions before they fully commit to an FHA 203(k) rehab loan or an FHA One-Time Close construction loan.
How Much of Your Own Money Do You Need for the Project?
Considerations in this area include both your down payment and closing costs at a minimum. What about the money you might need to install some non-standard features the FHA loan might not cover?
If you want an FHA 203(k) rehab loan to renovate your property, remember that any features like a swimming pool or barbecue pit must be paid for out-of-pocket and not with FHA loan funds.
“Luxury items” aren’t allowed as part of your rehab loan options. But you can pay for them yourself, and that’s where a modified budget for the home loan comes in.
How Much Time Do You Need?
Some borrowers are in a hurry. But it’s better to dial back your expectations when construction is involved and assume there will be delays.
Any project involving a third party and needing to purchase supplies, raw materials, and equipment is subject to delay. Anticipate those delays when planning your timeline.
What the Builders Offer
What kind of guarantees does your construction work come with? Know these details far in advance, as you don’t want to make assumptions about issues that could cost you money later.
If there is a limited warranty, find out what those limitations are, plus the duration of the warranty and, most importantly, the conditions under which you can redeem that warranty.
Insurance and Permits
Don’t take the contractor’s word for it. Check that the builder has the insurance, permits, and other paperwork the state requires to do business with you as a contractor. If you cannot verify a builder’s license and insurance status, it may be smart to consider a different company. The more transparency your contractor offers, the better.
Remember to check with local builder associations or review sites like Angi.com to see that a given builder is insured, licensed, and registered with the state.
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RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
But the results are worth the effort for many borrowers, and those who get the most of their rehab loans typically ask some key questions before they fully commit to an FHA 203(k) rehab loan or an FHA One-Time Close construction loan.
How Much of Your Own Money Do You Need for the Project?
Considerations in this area include both your down payment and closing costs at a minimum. What about the money you might need to install some non-standard features the FHA loan might not cover?
If you want an FHA 203(k) rehab loan to renovate your property, remember that any features like a swimming pool or barbecue pit must be paid for out-of-pocket and not with FHA loan funds.
“Luxury items” aren’t allowed as part of your rehab loan options. But you can pay for them yourself, and that’s where a modified budget for the home loan comes in.
How Much Time Do You Need?
Some borrowers are in a hurry. But it’s better to dial back your expectations when construction is involved and assume there will be delays.
Any project involving a third party and needing to purchase supplies, raw materials, and equipment is subject to delay. Anticipate those delays when planning your timeline.
What the Builders Offer
What kind of guarantees does your construction work come with? Know these details far in advance, as you don’t want to make assumptions about issues that could cost you money later.
If there is a limited warranty, find out what those limitations are, plus the duration of the warranty and, most importantly, the conditions under which you can redeem that warranty.
Insurance and Permits
Don’t take the contractor’s word for it. Check that the builder has the insurance, permits, and other paperwork the state requires to do business with you as a contractor. If you cannot verify a builder’s license and insurance status, it may be smart to consider a different company. The more transparency your contractor offers, the better.
Remember to check with local builder associations or review sites like Angi.com to see that a given builder is insured, licensed, and registered with the state.
------------------------------
RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
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