We have the chance to buy a relative's house but it will need substantial rehab. What mortgage options do we have?
One option is the FHA 203(k) Rehabilitation Mortgage Insurance Program, which is perfect for people who are buying a fixer upper.
This program offers solutions for both the buyer and the lender. The program allows buyers to wrap home renovation costs into their mortgage. The lender takes the as-is market value of the property and adds the costs of repairs and renovations to the loan. In effect, the FHA insures the loan prior to completion of the rehabilitation. This is important because the value of the property before renovation may not be sufficient to make the loan.
The program applies to single family homes, some townhomes and condominums, manufactured homes, and mixed use properties that are primarily residential.
With this program, you can make a variety of improvements.
Major reconstruction is even allowed with this program. If the structure has been demolished but the complete existing foundation is not affected and will still be used, the construction is eligible. Foundation repairs are allowed If the structure will not be demolished but the foundation needs to be repaired, or elevated. Repair or replacement of structural damage to the house, attic, or basement can be covered.
The program will cover improvements to heating, air conditioning, and electrical systems, or to roofing, siding, gutters, downspouts, decks, patio, porches. It will even allow repairing or removing an in-ground swimming pool.