If you’re wondering can I buy a fixer upper with a conventional loan, don’t worry. 

Buying a house that needs some love is possible with a conventional rehab loan. 

You won’t need tens of thousands of dollars in cash to fix the home up. You can finance the home, repairs and upgrades all in one.

Sound too good to be true? 

Here’s what you need to know about a conventional rehab loan to know if it’s right for you.

WHAT IS A CONVENTIONAL REHAB LOAN?

You’re likely familiar with a conventional mortgage. It’s a traditional home loan borrowers use to buy homes move-in ready homes. 

But what if you’re looking at buying a home in less-than-perfect condition? 

Well, it’s true that home improvement projects add value to your home.

So, let’s say you found a home in the perfect neighborhood but needing significant repairs, remodeling or updates.

What do you do?

A conventional rehab loan lets you finance the home’s purchase price and the cost of fixing it up, too. 

Why consider it? 

Simple. It saves you from taking out a second mortgage, personal loan or racking up credit card debt. 

You also don’t have to exhaust your savings account to cover the repairs.

But, like a standard conventional loan, a conventional rehab loan has somewhat strict guidelines.

CONVENTIONAL REHAB LOAN QUALIFICATIONS

How do you qualify for a rehab loan?

A conventional loan has stricter qualifying guidelines because the government doesn’t back it like they do with FHA and VA loans.  

But don’t worry. 

The Wendy Thompson Team makes it easy to get the funding you need.

To start, you’ll need a down payment of around 5%. 

Some lenders want a higher down payment, so you may need to put up to 20% down. 

You’ll also need good or great credit. It doesn’t have to be perfect, but expect lenders to look at your credit history and credit score. 

If you have negative credit events, like a bankruptcy or foreclosure, be ready to explain it and prove that you’ve overcome it.

Lenders also look at your debt-to-income (DTI) ratio to compare your monthly income to your monthly debts.

It all comes down to lenders wanting to know you can make the payments. 

If you prove that you have the income, your debts are low enough and you have money saved to cover the payments and down payment, then you’re on your way to meeting the conventional rehab loan qualifications.

Simple and Easy.

Start your new home journey today

Start your application with our easy-to-complete online form.  We will be with you every step of the way.

HOW DOES A CONVENTIONAL RENOVATION LOAN WORK?

It’s not as confusing as it sounds to wrap your rehab costs into your mortgage using a rehab loan. 

Here’s how it works:

  • You make a down payment. Lenders can require a minimum amount, but remember that you’ll likely get better terms the more you put down. Some lenders prefer closer to 10% to 20% down, depending on your situation.
  • Your lender and contractor will work together. The contractor draws up plans for the work, which you’ll submit to the lender. Normally, lenders don’t have much say in what you do to the home. Since you’re financing the repairs, they want to know. The lender needs to make sure the renovations will increase the home’s value.
  • An appraiser will evaluate the home. Lenders base your loan amount on the potential after-repaired value of the property. An appraiser will use the contractor’s plans to determine the potential value. 
  • You must provide all qualifying documents. Lenders can ask for proof of income, asset and credit qualifications. You can get pre-approved, but the loan process can take 60 to 90 days to complete since there are many moving pieces to the puzzle.
  • You may need private mortgage insurance. If you put down less than 20% on the home, you’ll pay private mortgage insurance (PMI). The amount varies based on your down payment, home value and credit score. 
  • All work must be complete within six months. If you need longer, you may get up to one year, but you’ll need to get lender approval first. 
  • Work does not begin on the home until the loan closes. The lender pays the seller, like a normal transaction, and puts the remaining funds into escrow. The lender will disburse the funds according to the schedule drawn up with the contractor and after inspection of each completed phase.


Ready to get started?

Begin your application today!


WHEN A CONVENTIONAL REHAB LOAN MAKES SENSE

When considering a rehab loan vs. conventional, here’s the bigger question:

When does a conventional rehab loan make sense? 

A rehab loan could be the perfect solution if you find a property that needs work and you don’t want to exhaust your savings or take out another loan to fix it up.

It’s a great way to preserve the cash you have, so you keep your money on-hand for other purposes.

It’s also great for borrowers who don’t want multiple payments. 

Here’s what I mean:

If you take out a second mortgage, charge a credit card or get an unsecured personal loan, managing multiple payments can be tough.

Plus, there’s interest to think about: most other financing options charge much higher interest rates than a rehab loan.

GET STARTED TODAY

Did you find a diamond in the rough? A conventional rehab loan is a great way to finance a fixer-upper.

And the Wendy Thompson team is here to help. 

We’ll walk you through the conventional loan rehab process and help you get well on your way to creating your dream home faster than you ever thought possible.