What if the house needs repair?

Thinking of  purchasing a distressed property in need of repair?  Do you already own a home that needs repair and you don't have the cash?  You may be able to use a rehab loan to get cash to fix it up after closing.   These options include FHA 203K and FHA 203Ks programs.   For purchases in eligible areas (more rural areas) RD/USDA also has provisions for a minor amount of rehab money (under $10K).  State housing agencies like NH Housing, also often have rehab programs (in NH it is possible to get up to $40K in rehab funds thru NH Housing Finance Authority).
Generally the buyer or owner of the home must have contractors look at the project and give a written proposal to do the work.  The contractor must be appropriately licensed (or use licensed subcontractors) and insured. Much paperwork does apply!
The rehab loan process is more complex than obtaining a regular loan but it doesn't have to be too difficult if your lender has the knowledge and experience to guide you through it.   I prefer not to accept an application for a rehab loan from the buyer or owner until they have the contractor's bid(s) in hand.   It is imperative to get the contractors out to the property as soon as possible to get those bids.   Sometimes they will determine the cost is less or more than you thought and this can really influence your decision on financing (and/or your ability to qualify).  It is normally recommended that you have 3 contractors bid on any project.  Doing so will really help you to see the project more clearly.  As you meet with each contractor, each will have ideas which will enlighten you.   So you need to be prepared to spend many hours within the first ten days of your offer being accepted, meeting with contractors and making important decisions on what you want to include in your rehab.   Carpeting allowances, appliance allowances, etc are really important.  If your contractor gives you $500 for flooring and the flooring you want is $1500 then you may end up having a problem down the road.   So if you are considering a rehab loan, consider the upfront time necessary to do it right and surround yourself with good people who know what they are doing!
Author: Renee Duval -- a top ten loan officer for NH Housing loans and a Certified Mortgage Professional (CMP) with the NH Mortgage Bankers & Brokers Association.  NMLS# 97937.  Merrimack Mortgage Company is an Equal Housing Lender, Licensed by Massachusetts and the NH Banking Department . Mass Lender MC2561-119