Rehab loans help finance the cost of renovating distressed properties. Typically lenders will finance up to 70% of the "As Repaired Value" or the value after all renovations are complete.
Rehab loans are considered a type of construction loan. Generally the property needs significant improvement, but after those improvements are made, the value of the house will be greatly increased.
These loans are similar to construction loans because you are given money up front to fund the improvement of the property. There are rehab loan programs available not only to people purchasing a house they plan to use as their primary residence, but also to people looking to acquire investment properties. If you are handy and you don't mind a little bit of work you can usually find excellent deals, since properties needing work do not appeal to most homebuyers.
Many rehab loans require that the improvements be made by a licensed professional. Be sure to ask your lender if this is the case, if you plan on doing the work yourself.
