Construction and Rehabilitation AFML

What are Construction and Rehabilitation Loans?

These are two types of home loans that usually get grouped up together as they share various similarities.

Construction loans are ideal for borrowers that want to build a custom home from the ground up. They require – on average – higher base credit scores than other types of loans, and can be closed in one payment most of the time. Construction loans make it possible to break ground on a plot and shape your home precisely the way you want it. As far as choices, you can apply for a mortgage that covers construction only, or one that finances the construction and later transfers to a standard mortgage.

Renovation or rehabilitation loans on the other hand, can help you fund home improvements. They assist your efforts to turn a shabby house into your dream home. If you find a home with great potential but in need of repairs, some institutions provide mortgages that cover the purchase and renovation costs.

From minor improvements to major renovations, these mortgages open a host of possibilities for improving a new or existing home.

Already have a Construction or Renovation loan on your sights? Use our mortgage calculator and make sure it’s the right one for you!

Construction and Rehabilitation Loans – Notable Requirements

Different types of loans vary wildly on their qualification requirements.

While these might not be all the requirements to qualify for Construction or Rehabilitation loans, they are definitively essential to know up front!

• Both types tend to require a minimum credit score of 620 and up.
• Renovation loans tend to have minimum loan amounts, but allow you to borrow up to the value of the property.
• Some projects might not be eligible for a renovation or rehabilitation mortgage.
• Some renovation mortgages are only available for projects that take over six months.
• Local zoning regulations might play a role in what you can and can’t borrow for.
• Home inspections are often required to qualify for these loans.
• You might need full repair and remodel estimates.

Construction and Rehabilitation loans & Accessibility –
All You Need to Know:

Qualifications-wise, it tends to be a bit harder to get a construction loan than it is to secure other types of mortgages. Involving construction loan brokers is a common practice to help facilitate the process. Since the home isn’t built yet, there’s no collateral, and lenders want to see strong finances that suggest you’ll see the project to fruition.

When it comes to a renovation or rehabilitation loan, the lenders want to know that the project will add to the value of the home. There are many resources out there that can give you an idea of how much value you can get in return for each type of renovation.

To get approved, your primary goal will be to show your potential lenders an overview of your financial profile, with as much documentation as you can muster. The debt-to-income ratios typically seen for construction and rehabilitation loans sit around 45% or lower, paired with high credit scores (620 and up). Having said all that, construction and rehabilitation loans present significant opportunities and flexibilities for homebuyers, or homeowners looking to improve an existing property.

If you see yourself in a position to take advantage of one of these, it might be a great idea to seize the opportunity.

Ready to get that construction or rehabilitation loan you’ve been looking for? Let us help!