What Is a Rehabilitation Loan?

A rehabilitation loan is most commonly used to improve the structure of a house in some way, which could include anything from simple restoration to complete rebuilding of the structure. Rehabilitation loans can cover such things as improving energy efficiency, tackling lead paint issues; or replacing the wiring, plumbing or roof. Rehabilitation loans are also used to refinance property, as the rehabilitation program considers the potential worth of the property instead of its current value. A third use of these loans is to cover damages caused by a calamity or disaster.

Keep in mind that the interest rates for rehabilitation loans can be high in comparison to those on other loans. The rates vary in relation to the type of structure being covered. There is a lot of paperwork involved, and there are high closing costs. The lender looks at not only the applicant's current finances but also his or her repayment capability. The most basic requirement is that the applicant be occupying the residence. After the applicant meets the eligibility requirements, the Department of Housing and Urban Development has the final say.

A rehabilitation loan is meant to enable a homeowner to maintain ownership of his or her home. These loans are also advantageous for people of limited means who cannot afford a house of their own without some kind of help.

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