Progress

The contractor received the first check from the bank. The next period of work can start moving forward. In the meantime the kitchen is looking more finished. The electrical now looks less burn-the-house-down. This weekend we’ll begin demo on the bathroom.

We also ordered kitchen cabinets from IKEA. Set for delivery on May 3.

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Kitchen
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Electrical panel
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Bathroom tiles
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The First Draw

So we’re at the point where we need to make the first draw. A draw is what happens when the 203k contractor has completed enough of the work, at cost to him, to get reimbursed from the bank/loan. The contractor submits an expense sheet, the 203k consultant inspects the work and signs off, and then the bank cuts a check.

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New doorway into the kitchen.
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The reading nook transformed into a laundry/pantry.
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The old kitchen doorway being closed off.
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New plumbing, hurray.
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The rotted boards of the porch have been replaced.
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This area was particularly problematic with rot, particularly since it holds up the rest of the porch.
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What’s Left To Do…

So what doesn’t the 203k loan cover?

-Painting, with the exception of a base coat in the kitchen
-Upgrading the master bathroom
-Redoing the pock-marked drywall master bedroom
-Re-carpeting the master bedroom
-Redoing the pock-marked drywall in the second bedroom
-Grading/leveling the back lawn (we noticed an issue with swampland only after we closed)
-The gable-work replacement on the front of the house (the 203k only covers painting this, not replacing)
-Sanding/refinishing the front porch after the repairs have been made to the rotted portions
-Garden work
-Replacing the broken and rotting trellis work under the porch
-Removing the textured ceiling on the second floor (I’m pretty sure smokers lived here at one point so this is kinda gross)
-Getting the porch brick columns looked at because they seem to be in rather poor condition

Since these items are not covered under the 203k if we want them done we’ll have to do them ourselves, with the possible exception of the grading/leveling. Since we have mold/water remediation covered under the 203k we can get a change work order for the grading/leveling if we have to. However that cuts into our 10% contingency fund. Since we’ve already dipped the contingency fund once for covering some demo work that wasn’t implicitly stated in the 203k write up, we are very hesitant to do that again, at least this early in the process. The 203k loan is definitely a process.

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Scope of Work

So I’ve covered the hows, whys, and the basics of what a 203k loan actually is. Here’s a list of our bid sheet. This is everything that we are having done, per the 203k loan, on the house.

  1. Chimney Repair
    1. Tuck point
    2. Install new aluminum flashing
  2. Porch repair
    1. Replace rotted boards
  3. Sidewalk repair
    1. Replace missing sections
  4. Concrete driveway
    1. Replace gravel with strips
  5. Exterior Woodwork
    1. Replace/paint as necessary
  6. Interior and exterior caulking
    1. As necessary
  7. Privacy fence
    1. Replace old chain link fence
  8. Trim trees
    1. Lots and lots of squirrels here.
  9. Replace windows
    1. 20 of them.
  10. Paint 3 exterior doors
  11. Install 3 new screen doors
  12. Move opening from kitchen from left to right side.
  13. Drywall repair
  14. Make dining room nook into a laundry room/pantry
    1. Includes plumbing
  15. Refinish hardwood floors
    1. Approx 1000sf (4 rooms-ish)
  16. Replace entryway/half bath floor with tile
  17. Plumbing for kitchen
  18. Allowance for plumbing repairs
  19. New 50Gal water heater
  20. New sump pump
  21. Remove oil tank
  22. Replace electrical panel
  23. GFCI to kitchen
  24. New smoke detectors
  25. New Gas Furnace and AC
  26. New ductwork
  27. New insulation in attic
  28. New insulation in basement crawl space
  29. Kitchen Cabinets and Flooring
  30. Kitchen Countertop
  31. New Appliances
  32. Mold remediation of basement and attic
    1. Not a huge amount but enough that should be resolved.
  33. Demo existing baseboard heating
  34. Building permits and fees
  35. Architectural/Engineering fees.
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203k Renovation Loan

What is it?

A federally backed mortgaged that enables you to borrow up to 110% of the assessed value of the house to perform renovations and purchase the house. 203k loans can also be used to refinance a mortgage, but of course that’s not what we’re using it for. You can also roll in the cost of your mortgage payments during the anticipated period of construction, so if you anticipate 4 months of construction and you’re still paying rent somewhere you can roll those 4 months into the mortgage itself.

Why?

Why did we chose to go this route? Despite the work involved we both felt this provided us more options than just a traditional ‘starter house’ would afford. Why isn’t this type of loan more prevalent? It takes some serious work to go this route. It’s not as simple as picking out paint color–it requires research, work, and diligence.

The Process In General:

  1. Find a house/make an offer/get inspections done.
  2. Find a 203k consultant (this person acts like a project manager to a certain degree).
  3. Find several 203k approved contractor (this is harder than it sounds, contractors get paid incrementally rather than all up front which means the contractors pay out of pocket and get reimbursed).
  4. Get bids for work.
  5. Get appraisal done, bank approves everything.
  6. Close on house and begin work!

Our Process:

  1. Find a house/make an offer/get inspections done.
  2. Get a referral for a 203k contractor (there was confusion during this step of the process we were under the assumption that the company was a consultant and not a contractor which set us back at least a week or two).
  3. Hurriedly try to find another contractor that has good reviews while also trying to find a 203k consultant.
  4. Get 2 bids.
  5. Bids come back MUCH MUCH HIGHER THAN EXPECTED, we need to adjust our expectations and our to-do list. Also things were left out of the bid sheet and/or additional things were added. Not very impressed with either company.
  6. Panic because at this point we’re talking about delaying closing and we still don’t have anything solidified.
  7. Find a 203k consultant who has great reviews (thanks Angie’s List).
  8. Call several contracting companies and ask if they can expedite a bid for work, schedule 2 more walk-throughs. Ask existing companies to provide a modified bid.
  9. Get 1 more bid. Much more reasonable and in-line with what we want, the other place just can’t swing it time-wise and we’re running out of time. The first two companies still come in very high so we go with the last contractor.
  10. Get post-work appraisal done. This means that the appraiser goes around and, based off of our work order, gives an estimated appraised value of the house with improvements. The 203k will loan up to 110% of the house value after work has been done, so this is key in securing the loan.
  11. Push back closing once again.
  12. Panic because appraisal comes in about 15k lower than we expected.
  13. Discuss in depth with our Realtor, realize that our initial offer was too high. Comparable houses in the neighborhood had AC and ours does not, oops.
  14. Go back to seller and ask him to drop the price by 10k and still pay closing costs. We’re willing to walk at this point if it doesn’t happen.
  15. Seller agrees to drop the price, much rejoicing is had.
  16. At this point we are still a tiny bit over 110% of the appraised value (offer + construction = 115%). We are in a conundrum at this point. We can’t drop anything from the bid because that would affect the post-work appraisal (and we’d have to get another appraisal done if we did this, adding more out of pocket to the cost and more time). We agree to drop the construction contingency fund to 10% and take out the 6 months of mortgage payments we had rolled into the total cost. Mortgage company does magic and everything is good to go.
  17. Close on house and get keys! Finally!
  18. Start talking with our contractor about actually doing these things now.
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Hows & Whys

A little bit of back story.

Our initial house buying plan was something that would be relatively low maintenance that we could upgrade/paint/tinker with to our liking. However a downside to this is that neither of us like McMansion/70’s/cookie-cutter style which seems very very prevalent in this area. I blame this on being right down the road from Columbia, MD which is a planned community from the 1970s. So we were rather stymied. What did we want in a house? We love the houses in the historic district of our town but anything affordable is generally rundown and in need of repair and like the rest of America we don’t exactly have a lot of capital on hand (thanks student loans!), at least not the kind it would take to rehab an old house.

Then one day one of us came across documentation about 203k renovation loans. Backed by the federal government a 203k renovation loan enables you to borrow up to 110% of the assessed value of the house to perform renovations. We did some research and it seemed like if you were willing to put in the time and effort to make it work, it could end up being a pretty good deal. Well, we could handle that.

Our next step was to contact a realtor who had dealt with 203k loans in the past and talk it out. At this point it was early September, but forewarned is forearmed and the more time and information we had to make decisions the better off we’d be. At least that’s what we figured.

We were planning on starting a serious house-buying search at the end of December 2015/beginning of January 2016 when our Victorian came across my path in late September. Being honest though, when I say “came across my path” what I really mean is that I had set up Redfin alerts for our desired areas a year a while ago, just to keep an eye on trends and whatnot. I sent the link to Gordon and we both said “there’s no way the timing would work out in our favor”, but what could it hurt to look? Famous last words.

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