Rehab Loans NJ: The Benefits
Rehab Loans in NJ: Introduction
Rehab loans in NJ for home renovation following Hurricane Sandy have become a very popular financing for New Jersey homeowners.
Rehab loans in NJ, also known as 203k loans, fall under the jurisdiction of the Department Housing and Urban Development (HUD). These types of loans have existed for decades, but they have seen increasing relevance in the wake of the large storm.
The basics of rehab loans in NJ is that they enable a homeowner to include the cost of home repairs on their primary home into a financing program, either when they are purchasing an existing home or when they are refinancing their own home.
Rehab Loans in NJ: Benefits
The main benefit of rehab loans in NJ is that the borrower does not need to come up with out of pocket costs when renovating his new purchase. Renovating a home in NJ can cost tens or hundreds of thousands of dollars. Obviously this is a large sum of money for anyone to come up with. So the 203k loan program allows for these costs to be lumped into the cost of the home and bundled into one mortgage.
Traditionally, the alternative to rehab loans in NJ has been 2 loans – one for the purchase of the home and one for the construction phase. This is a lot more paperwork and hassle for the borrower. Plus, the lending institution that is providing financing for the new home would generally not lend on the future value of the home when repairs are complete. They would establish the value of the home as is, prior to the repairs, so there would be contingencies in place during the entire construction phase.
By contrast, rehab loans in NJ are guaranteed by the Federal Housing Administration (FHA) and value of the home is established prior to the repairs beginning. The value of the property is calculated by the FHA using two methods. The first method of valuation is the sum of the as-is property value plus the total cost of renovations. The second evaluation method is to calculate 110% of the property’s total value post-rehabilitation. The FHA guarantees a loan amount for rehab loans in NJ up to whichever of these two calculations is lower.
Rehab Loans in NJ: Summary
Because rehab loans in NJ are backed by the FHA, the mortgage lender has security, the homeowner has security, and the contractor(s) doing the work have the security of knowing that they are going to get paid, because all disbursements to contractors are fully guaranteed.
Overall, 203k loans in NJ provide a valuable solution to thousands of homeowners who are looking to get back into their homes and resume their lives. There are some restrictions to renovation loans in NJ, but overall, rehab loans in NJ are a sound solution.