REHAB vs. Savings

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    My husband are trying to find out if we can fund repairs from our savings, instead of using a REHAB loan. We simply do not want to finance the repairs through NACA Rehab when we can pay cash out of pocket for the few repairs that we are doing.

    The seller is doing half of the repairs, and we are doing half of the repairs after closing. We know that NACA would prefer us to use that money for an interest rate buy-down, but we are happy with the interest rate we locked in. We’d rather not increase our debt with a HAND REHAB if we can fund the repairs using a contractor of our preference out of pocket.

    Our question is; is this allowed?
    Can we, as the homeowners, choose to pay for the repairs out of pocket instead of using a REHAB loan through the HAND department?


    You cannot and depending on your local regulations it could potentially be against the law.

    You can however see if hand will allow you to waive some repairs which would allow you to close and then fund the repair yourself.

    Otherwise if the seller won’t do it it will need to be financed…there are many legal implications associated with paying for a repair on a house you don’t own even if it’s not illegal you are still faced the possibility of the sale falling through or something going wrong and the seller claiming you responsible that most banks won’t want to touch.


    Thanks for the response but I think you may be misunderstanding what I am asking.

    We are wanting to know if we can pay for the repairs out of our pocket after we close, and own the home in lieu of getting into more debt. The same as we would pay for repairs after closing for the duration of our time in the house. So we buy the house, we close, and we repair what is needed out of our own money instead of using the REHAB loan.

    We are NOT asking if we can do repairs before the house is ours.

    • This reply was modified 9 months ago by catm0901.

    Sorry. If HAND allows you to waive repairs you’re good to go. If not your options are to renegotiate with the seller or roll them into a rehab loan.


    Hello catm0901,

    You can sign a waiver on the repairs. However, this means if any of the items on the repair list are health, safety or code issues, then they must be repaired before you can close and will have to be part of the seller’s half of the repairs.

    That being established, you are still going to want to consider rolling your part of the repairs into the loan and doing interest rate buydown instead. The very simple reason is that there’s an extremely good chance that it will cost you more money in the long term to not do the buydown because of the incredible effect the buydown feature has on your loan.

    Obviously, I don’t know any of the numbers in your case regarding purchase price, repairs and so on, but here’s a good example of how it works.

    Let’s say the purchase price is $200,000 and the total needed repairs are $20,000. Under what you described, you are putting $10,000 toward repairs and the seller is providing the other $10,000. Here’s how it breaks down, looking at Principal and Interest only in a 30 year loan for simplicity, since Taxes and Insurance doesn’t affect this:

    No buydown, all repairs out of pocket –
    Loan Amount: $200,000
    Interest rate: 3.125%
    Your share of repair funds: $10,000
    Monthly payment: 856.75

    Total prinicpal paid $200,000
    Total Interest paid $108,430
    Repair funds: $10,000
    Lifetime expense $318,430

    Buydown $10,000, repairs rolled into loan –
    Loan amount: $210,000
    Interest rate: 1.875%
    Repair funds: Zero (part of loan)
    Monthly payment: 763.14

    Total Principal paid: $210,000
    Total Interest paid $64,730
    Repair funds from your pocket: zero
    Lifetime expense: $274,730

    Plus if you make less than 80% of the median income for your area, this is possible:
    Buydown $20,000 (seller contributes to buydown instead of repairs)
    Loan amount: $220,000 (includes ALL repairs)
    Interest rate 0.625%
    Monthly payment: $670.35

    Total Principal paid $220,000
    Total Interest paid: $21,327
    Repair Funds from your pocket: zero
    Lifetime expense: $241,327

    As you can see, using those funds for buydown instead of repairs will save you several times the amount of money you pay toward buydown.

    Please at least take the time and crunch the numbers before you possibly cost yourselves tens of thousands of dollars.

    Tim Trumble
    Online Operations, NACA

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