Rehab Loans
by Craig Goebbel
President & CEO, LoanTek, Inc.

A rehab loan is any loan used to acquire an existing home for the purpose of repairing deficiencies and remodeling. FHA and conventional lenders offer rehab loans. Which program you qualify for depends on many factors, including the scope of the project, the size of the loan and your personal qualifications.

A rehab loan offers many advantages. Typically, a home in poor repair can be purchased for less than market value even when considering the cost of the project.

Doing the math is simple. Take the cost of the home and add the cost of the project.

This total is called the "cost of acquisition". As long as the finished home will appraise for an amount equal to or greater than the cost of the project, your home will qualify as a rehab project.

What remains is what down payment you will be required from you. This is determined on a case-by-case best determined by working directly with your lender. Some of the primary factors include how much you can afford to pay for housing each month, your down payment (it can be as little as 3%) and limits on the size of the loan, if any.

Rehab loans can be used for owner-occupied as well as investment properties, depending on the qualifications of the applicant and the type of property involved.

The scope of the project is limited only by your imagination, your personal qualifications and the finished value of the home. More often than not, our clients have rewarding, successful projects and finish with a wonderful place. Often an added bonus is some nice equity in a home that continues to appreciate.

You Home, the All-Star Investment

Baseball fans that decide to move to the region after the 2001 All-Star Game festivities will find plenty of housing choices in the MLS inventory, but those homes may come with sticker shock. In1979, the last time Seattle hosted Major League Baseball’s All-Stars game, the average price of single-family homes sold in Seattle was $67,023. The average selling price for a home in Seattle for the first half of this year was $265,000. This is a $198,000 increase since then.

How does that equate to an average annual rate of return?

Well, if you bought that average home in 1979 for $67,023 and today is sold for $265,000, the rate or return on the entire value of the home would be 6.82%.

That does not sound very good compared to the stock market (excluding the last 12 months!). But if you compare the appreciation of the equity now verses then assuming a 20% down payment in 1979, your rate of return increases to 13.75%. At 10% down, that rate of return increases to 17% after adjusting for the cost of mortgage insurance!

Granted, this is a simple analysis. However, the monthly cost of the mortgage with taxes, insurance and maintenance will roughly be the same as renting for the same period of time. And this analysis ignores the advantage of deducting mortgage interest every year. Any way you cut it home ownership in our region is an All-Star Investment.

© 1999 - 2004 LoanTek

Craig Goebbel is President and CEO of LoanTek.com, mortgage loan brokerage.  He is also producer and host of Real Estate Radio Show, a Seattle-based talk show featuring mortgage and real estate news, interviews and listener calls. It is broadcast on KVI Radio AM 570 in Seattle, Washington. Past show are also webcast via the Internet at http://www.realestateradio.net.

Real Estate Radio Sponsor

Real Estate Radio with Goebbel and Gray is the leading real estate radio talk show in the world and is hosted by Real Estate home mortgage expert Craig Goebbel, owner of LoanTek Home Loans and Robb Gray of John L. Scott Real Estate.