These types of contracts are needed because borrowers, needing to secure funds to purchase a house that needs repair, may not qualify for a contract to make the purchase until the repairs have been made. It is a catch 22 situation in which the bank will not lend the money to buy the home until completed repairs are confirmed, but the repairs cannot be completed until the home is purchased.

Approved home improvement loan and lending services offer a home improvement loan for qualified borrowers. The contract allows the borrower to receive both the funds to purchase the home and to make the appropriate repairs. The contract is only available to borrowers who plan on occupying the residence. First, the borrower locates the property desired for purchase and repair. Then a sales contract is executed that states the results of an analysis done that would value the house at its worth with the completion of all appropriate funded repairs.

The sales contract should state that the borrower plans on financing the home improvement loan through the use of a participating lending organization. Approval for the home improvement loan is given by FHA and the lender. A detailed proposal must be submitted with application of all contracts. The detailed proposal should include exactly what repairs are to be made, by whom, and what the estimated cost would be. The lender will appraise the property based on the proposal and distribute the first wave of funds for the purchase of the property.

The next wave of funds will go directly to the contractor, with no more being distributed until the first phase of repair is complete. The home improvement loan funds are distributed periodically as each section of repair is completed. They act similar to construction loans. When the entire project is complete, all home improvement loan must be refinanced by a conventional loan and repaid. Proverbs 9:1 says, "Wisdom builded a house." Even though we can get quick funds to help us with our construction projects, God doesn't excuse us from managing our resources well. The first step we need to take when entering into these contracts is to pray and ask God for His guidance. When we seek His will first, He will help us avoid many financial traps.

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