Long story short, my dad recently inherited his parents home after his mother passed. The home is completely paid off. He is interested in selling it to one of his kids for $80k-100k and I believe it was appraised somewhere in the mid 300k. Me and my husband would be interested in doing a rehab loan to fix up the home if we were to buy it. It is livable but quite dated and we would want to modernize/ make more energy efficient and maybe even add a small in law unit if he would like to stay in the home as well. I understand that would make over 200k gift equity which I believe would cover the down payment/closing costs? Would a Reno loan be doable in this situation? Or would we be better with the 80k mortgage and doing a separate renovation loan? Credit is in the very good level and we were approved for 275k back in February when we were originally looking at homes to buy. We are open to advice and suggestions :) Thank you all in advance!
If it's a basically functional and complete home, and you will have a bunch of equity, a cash out refi or HELOC would be significantly more cost effective (rates/fees) and easy (paperwork, back and forth, closing time, etc) than a renovation loan.
Cash out refi will be the best bet if it's going to be long term debt that you pay back over years, HELOC will be best bet if you're going to pay it off quickly.
I would recommend a Freddie Mac product called CHOICErenovation. You finance the renovation costs along with the home purchase as part of the same loan. You'll need to use a licensed contractor for the repair work. This is a nice way to get all your costs rolled into one loan with one closing.
You are in an excellent position to do a rehab/purchase loan. One thing to keep in mind if you look at an FHA based loan such as as 203k, you may have an Identity of Interest conflict. This is not an "arms length transaction". Freddie is a little more lenient on such situations, but there are several programs that allow rehab costs into the purchase loan.
To avoid all the paperwork, you could do a cash out on it. Use the cash to pay for the rehab. Your father may have to deed the property to you so the cash out could be in your name. It only takes most counties a few days to record the deed and normally costs $500 or less.