Rehabilitation Mortgage
What Is a Rehabilitation Mortgage?
A rehabilitation mortgage is a home loan that allows borrowers to finance both the purchase (or refinance) of a property and the cost of renovations in a single loan.
Instead of taking out a separate construction loan, the repair costs are rolled into the mortgage balance.
Common rehabilitation loan programs include FHA-backed options insured by the Federal Housing Administration.
Why It Matters in a Mortgage
Rehabilitation mortgages allow borrowers to:
- Purchase fixer-uppers
- Finance major repairs
- Improve property value
- Combine financing into one monthly payment
They can expand housing options in competitive markets but require contractor estimates and lender approval of renovation plans.
Because renovation funds are involved, underwriting is typically more detailed.
How It Works
- Property is appraised based on projected after-repair value.
- Loan includes purchase price plus renovation budget.
- Funds for repairs are released in stages.
The completed property must meet lender and program standards.
Rehabilitation Mortgage vs. Standard Mortgage
Rehabilitation → Includes renovation funds
Standard → Finances property as-is
FAQs About Rehabilitation Mortgages
Are repairs required?
Yes, funds must be used for approved improvements.
Can I perform the work myself?
Often restricted.
Is approval more complex?
Yes, documentation requirements are higher.
Related Terms
