Some people are drawn to new construction homes. They like having everything new and don’t have to think about who’s dirty feet have walked over the carpet before their own (I’m speaking directly to my brother right now). But some people gravitate to old homes and love to think about the lives previously lived within the walls. I’m one of the latter. The problem is that beloved history often comes with monumental problems – leaking roofs, busted plumbing, combustable wiring, and sinking foundations.

I’d heard of “rehab loans” but really didn’t know anything about them until we got serious about this property. It turns out there are a few different ones and here are a few of the basics.

• FHA Rehab Loans
  • 203(k) Consultant – For extensive renovation projects
  • 203(k) Limited/Streamline – For projects up to $35,000
• Fannie Mae Homestyle Renovation Loans

There are pro’s and con’s to each loan program, but we ultimately decided upon a Fannie Mae Homestyle Renovation Loan. Here’s why:

• Better interest rate with higher percentage down
• No upfront PMI due at closing
• Lower PMI overall

FHA 203(k) Loans are definitely useful, but during the time of applying for our mortgage and our needs, the Fannie Mae was a better choice. It is also worth noting that Fannie Mae also has programs similar to FHA’s 3.5% down option like HomeReady. With HomeReady, a potential buyer can input the address of a home they are interested in at and see if the property is located in an area that allows the lower down payment option and if there is a maximum income qualification for that address. For example, a home that has been long unoccupied in our previous neighborhood in Springfield, IL is located at address 804 N. 7^th St, Springfield, IL, 62702. The address tract has a maximum income limit of $78,500 in order to qualify for the HomeReady loan product. If you simply move a few blocks east or west though, there is no income limit! Since we were flexible on the down payment, Fannie Mae worked best for us financially (lower interest and lower PMI) and allowed us to do more in upgrades and projects the way we wanted.

When someone tells you that rehabbing a home is not for the faint-of-heart, BELIEVE IT! It seems at least once per week we were preparing ourselves to walk away. First, finding a contractor who was willing to both work with a rehab loan and out in a remote area was beginning to seem impossible. Then when we finally had a contractor, we had to wait on subcontractors to give us quotes for really important items, like foundation repair. Then negotiating the price with the seller and working with our preferred lender as a mortgage broker since they don’t normally do renovation loans. This made for six parties involved in the sale and closing of the deal: buyers, sellers, contractor, mortgage broker, mortgage lender, and the contractor approval company. We had our loan paperwork, the contractor had his packages of paperwork to be approved to do the work, and trying to keep everyone updated and on the same page could be a waking nightmare some days.

I will say for anyone reading this and thinking of doing a rehab project, the appraisal was the most pivotal point of the loan approval process and we had to have ours done THREE times. Yes, three. Tres. Trois. THREE TIMES.

We ordered the appraisal a little early believing it would be a week to two weeks before an appraiser was able to physically visit such a rural property. Strangely enough, he was able to inspect it within 48 hours of the order. He went out without having the finished drawings of the proposed contract work completed and submitted his first report a few days later with an “As-Is Value, Repairs Needed”. After trying to correct it and getting him the drawings, he submitted another appraisal with minimal repairs completed and not to the specs provided by the contractor. We had to provide him with more construction information and find comparable homes for price analysis for him. Almost a month later, we finally had an appraisal that allowed us to move forward. Needless to say, there was a lot of nail biting and wine drinking that month!

We were fortunate though to get a favorable appraisal and have sellers and a Realtor who were willing to learn the process along side of us and see it through.

On June 29^th, 2018, we signed the papers and have a new place to call home!