FHA Rehab Loans and the Best Remodeling Projects

July 24, 2018

Are you interested in remodeling your home with an FHA Rehab loan? These FHA loans are available as purchase loans for your next home or as a refinance loan for your existing property. FHA loans allow the borrower to apply for a rehab loan to repair or remodel property in two different ways.

One is a standard FHA 203(k) Rehab loan that allows for large-scale work to be done on the home. The other is an FHA Limited 203(k) Rehab mortgage that has no minimum loan amount but does limit the amount of rehab work to non-structural repairs.

What are the best rehab loan projects for these FHA rehab loans and rehab refinance loans? What is the best return on investment (ROI) for this type of remodeling?

The answer to that will vary depending on the housing market and in some cases the type of refinance loan you apply for. A swimming pool feature is something that is a big plus in some markets and for some house hunters.

But your ability to get good ROI on this type of feature, whether it’s the addition of the pool itself or remodeling work in an existing pool area is limited with an FHA rehab loan.

FHA Rehab Loan Rules, ROI for Swimming Pools, and Alternative Loan Options

Swimming pools are considered a luxury feature. An existing pool may be repaired with an FHA 203(k) rehab loan, but a new one cannot be put in. There are other luxury restrictions for FHA rehab loans including a prohibition on using rehab loan funds to install satellite dishes, barbecue pits, and bath houses.

If you are thinking of the ROI for your remodeling project and still want to add a pool, it may be necessary to consider an FHA cash-out refinance instead.

The money back from an FHA cash-out refinance loan could be put toward the swimming pool with no restrictions since the borrower can use that cash out for any purpose.

Best ROI for FHA Rehab Loan Projects

For FHA 203(k) rehab loans, your best ROI for the money spent may be replacing worn-out doors, especially on highly visible areas such as a garage. Adding a deck can also be a plus, as can adding a veneer to the exterior of your home.

The specific benefit of a veneer may depend on what is popular in your area; what exterior features do other houses in your neighborhood have?

Other Remodeling Projects That Can Add Value to Your Home

Many of these projects are designed specifically to both add to the aesthetic value of your home but also increase the property value. What else can increase the value of your house? Using FHA loan funds to add energy efficient upgrades to a home including more efficient storm doors, storm windows, even solar energy systems.

These upgrades can be paid for with added funds to an FHA 203(k) rehab loan by asking your lender to include the add-on known as an FHA Energy Efficient Mortgage (EEM) to your loan. The EEM allows the borrower to add more funds to the loan amount to install approved energy saving features to the house.

Borrowers may be required to use a third party energy consultant to plan these upgrades and submit those plans to the lender, but the savings on your utility bills may be well worth the effort.

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