I'm about to co-sign my first and primary property with my fiance's dad, so I'm looking for some recommendations on loans that can finance rehab costs by tying them into the mortgage. I've read about the FNMA loan but not any others yet. Please feel free to describe your experiences dealing with these loans as well.
Hi @Jose A Perez , I've never used it myself, however you could research the FHA 203(k) loan since you're a first time homebuyer. This loan allows for a borrower to finance both the purchase and the rehab at a 3.5% down payment.
@Jeffrey Donis pointed you to an online article about to learn more about the 203k, which does point out some of the benefits of the 203k, but that online article also contains a lot of errors or misinformation about the 203k, such as ....
- There is NO "regular" or "streamline" or "modified" version of the 203k. There are only 2 versions of the FHA 203k ... Limited & Standard.
- The loan application process for the 203k is NOT complex. It's basically the same process as the traditional FHA loan except you have to get rehab pricing and the lender uses the Maximum Mortgage Worksheet.
- There is no special approval for FHA lenders to originate a 203k Loan. If the lender offers FHA loans, they can do a 203k. Now, they probably shouldn't unless/until they go through training, but they are allowed to.
- And while FHA guidelines do allow the borrower to do their own rehab, FHA guidelines do require the borrower to be skilled or have experience for the rehab they want to do. And then 99% of lenders will not allow you to do your own rehab because it's too much liability for them. So, it's not really feasible to think you will be allowed to do your own rehab on a 203k.
- Hiring a 203k Consultant is NOT optional on the Standard 203k. It's only optional on the Limited 203k, and even then, it's advisable to still hire a 203k Consultant.
For a more complete list of all the 203k guidelines, reference HUD SFH 4000.1.
Hope this helps!