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The Owner Builder Rehab process is a purchase or refinance rehabilitation loan. This loan program allows a borrower with limited funds to purchase, or refinance, and fix up a 1-to-4 unit dwelling many times with nothing down. Improvements made under this program may be significant or minor, but a minimum of $5,000 in improvements must be made, and they must fall within certain categories. Additionally, there is no upfront Mortgage Insurance Premium (MIP) charged on these rehab loans. Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place. In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
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If needed, there are some repairs which are mandatory: thermal protection (insulation, etc.), smoke detectors, wood-boring pest and moisture damage, septic, well or water service, and elimination of health and safety hazards. Other eligible repairs or improvements to meet the first $5,000 minimum requirement include modernization and functional changes; reconditioning or replacement of plumbing, heating, air conditioning and electrical systems; aesthetic upgrades and the elimination of obsolescence; roofing, guttering, and downspouts; damaged flooring; and energy conservation upgrades. Beyond these, virtually any other improvements can be made, such as purchasing new appliances or repairing a pool. Many additional costs can be financed into the rehab loan, including permits, inspection costs, consultant fees, write-ups, and supplemental fees. Other expenses that can be rolled into the loan include the escrow for contingency costs and up to six months worth of the proposed mortgage payment.
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Briefly, here’s how the program works. The loan will be used to purchase a piece of property, or pay off an existing loan for a refinance. The first step is to be prequalified with our national FHA approved loan team with years of experience working with government rehab loans. At the same time Owner Builder Finance and client start a bid process to estimate repair costs on the property; this is a line item estimate of the repairs that need to be completed, as well as any other repairs that you want done on the property. With our help and bids from sub contractors in the area this will tell you if the cost is in the range that you’re willing to pay to fix up the property. If the costs are acceptable, Owner Builder Finance will help with the final write-up/line item budget, which is a relatively detailed item-by-item breakdown of each item to be repaired, as well as the estimated cost. (It can be financed into the loan.) Once agreed upon, the lender will then order an appraisal based on the line item/write-up. The appraisal will give an “after-improvements” value. Bids can then be solicited from sub contractors and home supply stores for the proposed repairs. Acceptable bids cannot exceed the cost given in the original line item/write-up, so it’s important to nail down all bids during the pre approval stage. |
Note: Approvals may vary based on credit, capacity to pay and appraisal value. Down payment can change based on these factors and location of the property.
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