Rehab Loans Becoming More Common for Chicago Homebuyers
It’s no secret that there simply aren’t enough homes for sale in Chicago’s top neighborhoods to meet the demand for them. So many buyers today are getting creative, buying homes that are in dire need of full rehabs and paying for them with what are known as rehab loans.
Crain’s Chicago Business recently reported on this trend, saying that struggling Chicago buyers are turning to the rehab route to find the bare bones of a home that they can then turn into a residence that meets the needs of them and their families.
One of the most popular of the rehab loans is the FHA 203(k) loan. This type of loan allows buyers to include both the purchase price of their new home and the estimated rehab costs of the property into one purchase loan.
For instance, say you find a home in need of significant repairs that only costs $120,000, which is pretty cheap for the Chicago area. You’d then have a contractor tour the house, consider your plans for it and estimate how much it would cost you to rehab the residence. Say your contractor says it will take another $150,000 to restore the home you want to buy. You would then take out an FHA 203(k) loan for the combined sales price and renovation costs, a total in this case of $270,000.
There are other rehab loans available, but they work mostly the same way. And for each of them, you’ll need to provide written documentation from a contractor with an estimate of how much money you’ll need for the home repairs.
You’ll have to meet typical mortgage guidelines to qualify for these rehab loans. This means that you’ll need a solid FICO credit score — at least 640 or higher — and your monthly debt obligations, including your estimated new mortgage payments, must not equal more than 43 percent of your gross monthly income.
If you can swing the costs of a rehab loan, though, it might be a way to fight the low inventory facing Chicago buyers today. And when those repairs are done? You might have your own Chicago dream home.