While not widely advertised, a federally backed program called the FHA 203(k) loan might just be your ticket to getting that home improvement project done. It is also a way to help streamline the process so that you are not spending more time talking to lenders than you are to architects and contractors.
The main caveat with this program is that you must secure the FHA 203(k) while you are negotiating your first-mortgage purchase of the home. Be forewarned that the FHA 203(k) loan is not for everyone, even for those who qualify. One reason is its inevitable red tape. In fact, HUD acknowledges this and has instituted a program of certifying independent 203(k) consultants who can smooth the process for you.
Summary
"Rehab loan" is the nickname for FHA 203(k) Mortgage Insurance.
This program is administered by the U.S. Department of Housing and Urban Development (HUD).
You can get up to $35,000 for improvements (minimum amount you can take is $5,000).
You must take this loan at the time you purchase the house.
Red tape is involved with this loan, but there are consultants who can help you.
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