10 Firsthand Experiences with Renovation Loans

In addition to my last post outlining the different types of renovation loans and the process, I wanted to share our firsthand experience with using this type of loan. I thought it would also be useful to hear others’ experiences because, as we all know, every house project is different and comes with its own complications and victories. Plus, every person has a different tolerance for the technicalities and timelines involved with these projects! Hang in there because this is a long post — but it’s the post I WISH I had before starting this process, so I wanted to share every firsthand account I could.

I’ll start with our experience.

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Steve and I the day we bought Danascara.

Which type of renovation loan did you use?

We used the Homestyle renovation loan offered by Fannie Mae. We chose this over the 203k because it was a conventional loan — the 203k is an FHA loan which means it requires mortgage insurance for the life of the loan. 203k loans also seemed a little more complicated, so the Homestyle seemed like the best choice for us.

Did you do any DIY as part of the loan?

We did not do any DIY funded by the renovation loan, but we did do DIY with our own funds while the contractors were working. Mostly cleaning up, some light demo, caulking and patching, and prepping an old claw foot tub and a buffet-turned-vanity for the upstairs bathroom. We also refinished old bowling alley lanes for the kitchen countertops.

What led you to use a renovation loan?

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This is how Danascara looked when we first went to see it. You can see why it scared so many people away!

When we first came to see Danascara, it was just out of curiosity. We had known of the house, and knew it was abandoned, and wanted to see what kind of shape it was in. We were amazed to discover that, despite suffering a fire in the addition on the back of the house, the original brick structure was untouched by the blaze. The foundation and structure were shockingly solid for an old house — the foundation had been pointed and the whole house had been reinforced with concrete piers in the basement and steel beams between the first and second floors in an extensive 1980s renovation. The whole house had received a brand new electrical system/plumbing system/new flooring, etc. at that time as well.

That said, the plumbing had cracked in places due to being abandoned for 8 years, and all of the copper piping in the basement had been stolen. The bathrooms were falling apart from age and abandonment. The kitchen needed all new appliances. The roof needed new slates in places, although the roof structure was in good shape. There was some water damage to the drywall throughout the house. There was an electric heating system, because the owner in the 1980s had used the house as his summer home. This kind of system is unheard of in this part of the country where it gets very cold — especially for a house of this size. The bills would be astronomical and the house would still be freezing. So, we knew it would need a completely new heating system. The burnt addition had to be completely removed and disposed of. And there was rot on the soffits and cornices near the rooflines that had to be fixed (one hole led directly in to the attic where a community of pigeons was in residence), as well as rotten porch floors on the front and side porches.

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This photo shows the burned addition.

For us, a renovation loan was a unique opportunity to basically trade houses for our dream house/project. With the low asking price for the house — it had been on the market for years and slowly gone down — plus bare bones renovations to make the house actually function and keep us safe — we figured out that we could come out with our mortgage nearly unchanged, but we would have a house and property with more potential and all the amazing history we love. Luckily, we were able to work with our contractor, who we know well, to see how we could make that work. We planned to tackle every other project after the loan was finished as we could afford it out of pocket.

We would not have been able to do a project like this without a renovation loan. We needed to live in our old house as we fixed up the new one, because it was completely unlivable, and we needed the cash to do the essential renovations before we could move in.

Positive and negatives of your experience?

Positives —

The process was so much easier and more streamlined that we expected. There was paperwork, but it wasn’t crushing. You spend a lot of time on the front end choosing materials and making sure all the documents/lists are submitted, and then the process just rolls along. It wasn’t that much different than a regular loan to me in terms of paperwork!

The opportunity to save an old house for the same price as buying a move-in-ready house that we would want to change a lot about anyway! This is pretty specific to our situation, but it doesn’t get more positive than that, for me!! I think just “the opportunity to save an old house” is a positive that can apply to a lot of people who use these loans. Or — the opportunity to buy a house that is not livable — which would require a large amount of capital without the renovation loan.

Negatives —

You have to stay on top of things — make sure you’re visiting the site to make sure there aren’t miscommunications about what needs to be done, since work moves so quickly. Stay in close contact with your contractor, especially when you’re changing out materials.

The timeline — in more ways than one. The contractors need to work quickly, because they can’t get paid until projects are completed and then inspected. Anyone who has done a renovation knows this is tricky, because if they are working quickly and there is any kind of miscommunication, things may be done in a way you don’t like. If you’re doing a project like ours, where you’re basically doing the bare minimum for an appraiser to say at the end that your house is worth what you spent, then you need basic necessities like lighting and appliances. If you’re planning to DIY things like painting and a kitchen remodel, that complicates your long-term timeline because the contractors have to finish their installation of lighting and appliances quickly, while you may not be done with your DIY projects.

Would you do it again?

If we could do it for such a low overall cost again, we would 100% do it again! It’s all about finding the right property at the right price.

What are your tips for others using the same loan?

  • Let your contractor deal with the subcontractors. The disbursement checks have to be signed over to the contractor, and he/she should be paying all the subcontractors. We had a subcontractor come to us for a payment, and we paid it out of our savings. Then we had to wait for reimbursement from our contractor. This also caused confusion with the subcontractor who thought he was getting all payments from us — and was then angry when he found out he would have to wait until after inspections to be reimbursed with subsequent payments. We should have just sent the subcontractor to the contractor for payment and explanations from the beginning — our mistake, but one we wouldn’t make again.
  • If you do buy any materials out of pocket for which funds are already allocated in the reno loan, keep detailed records and receipts so you can show your contractor and be reimbursed (example: if there are funds allocated for lighting and you buy a piece of vintage lighting).
  • Don’t forget the little stuff (OR the big stuff) when you’re making the materials list. Things like new light switches, caulk, joint compound — that stuff all adds up. Make sure to go through every last thing you can think of and make sure your contractor is including it all on the materials list. Think through every system in the house and every step of every project. We forgot to include the water system for the well on the materials list which we had to pay for out of pocket.
  • If you’re planning on mixing DIY in with the contractor’s work, make sure you understand the timeline of what needs to be done when to keep the project moving along.
  • You should have a good cushion of savings that you’re comfortable using for the project if you need to. We did forget some things on the materials list that we paid for out of pocket. We purposely left some things off the list so we didn’t have to choose them beforehand (lighting mainly), which meant we had to buy them out of pocket so the projects could be completed. We also did not use the loan to cover our mortgage payments for the 5 months we owned both houses, so we paid both mortgages out of pocket. Our savings was very important for all of these things!
  • The contingency is a necessary resource. We did end up using our contingency because the contractors we had planned to use for the heating system backed out and the new contractors were going to charge 10,000 more than the original quote (to do the job right — worth every penny). We had to take this money out of our contingency. The contingency also covered other costs — parging the badly laid brick wall that was underneath the addition, work the contractor did on our pool, installing the wood furnace in the basement and helping us install the wood countertops. If you don’t use your contingency, it can be used to pay in to your mortgage principal, or for any extra projects you’d like to add on at the end.

 

Now, for some other points of view:

 

Christa, a senior mortgage underwriter

@fitz_and_frannie on Instagram

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Christa, a senior mortgage underwriter, gave her take on renovation loans

I’ve only worked on [renovation loans] from the mortgage end. I see so many people waive inspections and then have so many issues come up that completely blow the loan reno budget. Even “as is” properties can be inspected so a borrower goes in fully aware. Also, vet the contractors. Check the license board for any issues and actually check references. I’ve reviewed both FHA and conventional reno loans and am always amazed how little due diligence borrowers do because they’re so excited to get started on the property, especially first time home buyers and/or renovators.

Other than that, my only other advice is from a friend who did a reno loan. He said, make sure the contractor(s) are experienced with them. They had to go through two bad ones before they found one who would deal with the lender’s requests and timeline.

From a lender’s perspective, obvious things like good credit and reserves make a difference for rates. Have all your documentation ready before you apply for a loan. Most recent paystubs, two years of W2 and possibly tax returns. At least two months bank statements with any large or unusual deposits sourced. Pay off any small balances on credit cards if possible, but don’t close accounts. A lot of lenders will go over 43% debt to income ratio, but rates are higher and why do you want your mortgage payment to be that much of your monthly budget? DTI does not include utilities, food, etc. that should be part of the budget.

Lastly, mortgage brokers can be helpful in helping find a lender, but you will pay for it in either a direct fee or through the lender, but sometimes at a higher rate than if you went to the lender directly.

 

Whitney, a realtor, & Stewart, Gastonia, NC

@our.gastonian.revival

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Whitney and Stewart

Did you do any DIY as part of the loan?

No, we only used the loan for contractor work.

What led you to use a renovation loan?

We knew we wanted an old house, and when we first viewed our home, we realized that it needed extensive repairs and updates beyond our skill set. Primarily, we knew we needed to rewire the property. We saw exposed knob and tube wiring in the basement, which we absolutely had to replace. The property also had NO central air (and is approx. 3000 square feet!), and in NC, that just isn’t any way to live. So, we knew we’d have to get that installed from scratch, duct work and all. We also decided to use the loan to cover the expense of refinishing the hardwood floors that had been hiding under disgusting blue shag carpet since the ’70s. While we probably could have done that task DIY, it wasn’t one we *wanted* to do — and the cost seemed reasonable to us. We had the GC remove one wall between the kitchen and breakfast nook, which allowed us to have a larger kitchen. This was important to us as we truly love to cook, and we host dinners and get-togethers frequently. Other than that, we did not changed the home’s layout at all.

Positives and negatives of your experience?

The biggest positives were that we didn’t have to learn how to be electricians or HVAC techs! Being able to get those crucial safety updates done upfront provided real peace of mind. Doing either of these tasks ourselves as amateurs would have been monumental tasks and taken a long time. The renovation loan allowed us to get those done in less time than we could have, and done correctly with permits and inspections and all the technical things we aren’t as versed in. We were also happy to have the floors done quickly (the floor guys did their part in less than a week!) and professionally before we moved all our furniture in.

One issue that isn’t necessarily a drawback, but rather something to be aware of, is that the property has to appraise for the initial loan amount + the renovation costs, but it has to appraise before closing. So, for instance, if a property in its current state is 100k, and renovation costs are 25k, the appraiser has to look at the proposed scope of work, and appraise the house based on its future value after renovations. If that value isn’t 125k or better, then the loan won’t get approved. We ran into this situation with a terrible appraiser–thankfully with Liz’s [the loan officer] help, we were able to get a new appraisal ordered, and it turned out a lot better. Your real estate agent should be crucial in this step in order to pull comps and do a full CMA (comparative market analysis) to help make sure you’re not offering too much for the property.

The biggest drawback, by far, for us was that we could not be our own GC. My husband has a degree in and has worked in construction management for several years, so we were really bummed that we couldn’t organize the subs ourselves. This led to the timeline we were told being wildly incorrect, with inconsistent or nonexistent communication between the GC we chose and subs. We had to scramble for several months trying to figure out where we’d be living because they were so behind. When we asked for new and correct timelines, the answer was always “two more weeks.” It was incredibly stressful. What had been a one-month timeline turned into four, because the subs were not adequately informed on the urgency of our timeline. Had we just been told honestly upfront, we could have pursued a short term rental.

Would you do it again?

Yes, we would, but not for just any house. We were committed to this property and knew its potential.

What are your tips for others using the same loan?

  • Pay attention to what items you have to have done, and what can wait. Would it have been really nice to hire out the interior painting on our loan too? Yes! But, we knew we could do it ourselves for a fraction of the cost, even if it took a while. We knew we could live with the bathrooms as-is for the foreseeable future. They’re not beautiful yet, but they’re functional.
  • I represented us as a buyer’s agent on the transaction, so I was already familiar with the home-buying process in general. If this is your first home-buying experience, be prepared for some stressful moments. Ask your realtor a lot of questions upfront. Have they worked with historic properties? I’ve seen several agents who think some repairs are absolute crises (replacing wood windows comes to mind… ugh), not realizing that it’s just part of the territory of an old home. Have they worked with renovation loans? Have they worked with first-time buyers? What is the home-buying process like in your state?
  • Also, do your research on tax credits. Properties in the National Register of Historic Places are eligible for some great credits, but you have to follow the correct documentation process. You and your contractor will need to know this. There may also be local tax credits available (for NRHP and state-designated historic districts), and they may have their own documentation process too.

Questions for Whitney as a realtor:

Do sellers get turned off when someone wants to buy their house with a reno loan, knowing it can take a bit longer to close?

A typical home that would be a candidate for a renovation loan does not attract average buyers, especially in the current market. Most folks who aren’t investors or flippers want a move-in ready or nearly-move-in ready home. By that very definition, [the homes that need some work are] going to sit on the market a bit longer than average. Often times these will be homes that the sellers know will need updating and repairs, so seeing that a buyer is getting financing that will address those items shouldn’t be terribly surprising. A reno loan will typically take 45-60 days to close, while a standard 30-year is a 30-45 days to close affair. So, you’ll want to make sure your realtor knows the local market and knows how to present the offer in a way that makes sense to the listing agent, so the seller knows what the terms for the offer really mean.

Does a renovation loan hinder a buyer in a fast-paced market?

If you have all your ducks in a row, it probably won’t.

I think it could be a hindrance if the buyer has not already been pre-approved (not just pre-qualified), and doesn’t have an agent actively watching the market for the right homes. In my market, syndication from our MLS to third-party websites can take up to 48 hours–by that time, the home could be gone. You or your agent will probably also want to have a good grasp on how much repairs typically cost, so they can help you determine if it will appraise for what you need it to. Know that you may lose on one or more properties before you get an offer that is accepted (we still sometimes talk about the first house we wrote an offer on!) and it’s okay. A home is what you make it, in the end.

Anything else to add?

Start researching historic districts, closed sales (within the last 90 days preferably), reputable GCs, and improvement costs in your market ahead of submitting an offer to prepare yourself and make an informed decision. Finding an agent who knows this process will be a huge asset to you, so don’t be afraid to interview 3 or 4 of them before you make your decision!

 

Abby and Matt, St. Louis, Missouri

@mystudiobc

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Abby and Matt, pictured here with their daughters Daisy (6) and Josephine (2.5), found a contractor who was comfortable with them doing DIY projects alongside her renovation loan-funded work.

We both work in education full time and do house projects all the other times. We have two daughters (2 and 6), and gutted our first house five years ago. It was an old cottage in which we found the ORIGINAL THATCH ROOF. Think hay and thatching…from I don’t even KNOW when….raining down on us as we tore each room apart. It was crazy. So that experience taught us that we have fairly thick skin and can do just about anything with the right type of masks, goggles, and haz mat suits.

For our most recent property, we did a construction loan. The property is unique: two 1890s farmhouses. One was converted into two apartments at some point (we rent those out). The other is a three bedroom, two bath “normal” house. We found it in the summer of 2018, we closed in the fall of 2018, we did work on it (with our contractor) until March of 2019, then we continued the work ourselves until moving in on June 1 of 2019.

Which type of renovation loan did you use?

We used a HUD product called a “203k” loan. It is designed for homeowners who need to make significant improvements to their home, and so the loan amount is based off the assessed value AFTER improvements are made. It is intricate in that all of the contractor’s plans, budget, timeline, etc, have to be approved as part of the loan closing process. Additionally, the project is monitored monthly by a HUD advisor. AND, the contractor is paid via our escrow throughout the project but the final payments aren’t made until project completion. All projects must be done within six months, too, which keeps things moving very quickly (which is nice!!). The only reason that these loans aren’t more common (in my opinion) is that 1) flippers and investors can’t use them…they’re for owner occupied properties only and 2) they’re FHA and have lots of paperwork, and some people hate paperwork (which is fair!).

Did you do any DIY as part of the loan?

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Abby and Matt collaborated with their contractor on this bathroom — they gutted it, the contractor fixed plaster and electrical, and they finished it out. They saved $7-10,000 working this way!

We did a TON of DIY alongside what our contractor did as part of the loan. For example, she removed two walls to open up our main level, she did the dry wall, the trim work, etc. We did all new light fixtures, hardware and paint. She removed a soffit in the kitchen and rewired the ceiling. Then we designed and built the entire kitchen. She rebuilt the rafters in our free-standing garage (it was LEANING when we bought the house). She also removed a terrible drop ceiling in a bathroom, re-wired and installed a new exhaust fan. We tore out the rest, tiled, reglazed, installed all new everything…you get the idea. In our mind, Tristen (our amazing contractor) had the job of making the space safe, functional, and ready for us to swoop in and make it beautiful. When we did these DIY projects, we used separate money that we saved, so it was on top of what Tristen was making via our loan agreement and contract.

What led you to use a renovation loan?

Until 2 years ago, we had no idea that reno loans even existed, let alone a 203k specifically. When we first learned about 203k loans, we knew they were perfect for us. We live in the center of St. Louis City, surrounded by century-old homes. Every single home on every single block needs work, even when well-maintained. We had capital to get a house and make some improvements, but we didn’t have the 50-60k necessary to really get things going quickly. We are also landlords and were specifically looking for multi-family properties that we could rent out and where we could live, so our options of finding one “move in ready” within our budget were slim to none. These HUD loans sometimes get a bad reputation because it’s a lot of paperwork, but in our opinion they’re a fantastic option because they keep things clicking along and there’s a high level of accountability for all involved. We developed such an incredible relationship with our contractor AND our HUD advisor, and we are so thankful to them. I’m sitting in a house typing this…and the house did even have WALLS a year ago. We would never have been able to go from closing to moving in less than 8 months later without the 203k.

Positive and negatives of your experience?

We have nothing but great things to say about the 203k. For real. Hands down great decision and one we will hopefully get to do again some day. One specific example is our flooring: we budgeted to demo carpet and terrible laminate and replace flooring on the main level of the home. For context it’s an 1890s farmhouse and each floor (there are three) is about 650 square feet. When our contractor pulled up the laminate AND the carpet, she found THE ORIGINAL FLOORS. That was seriously like an HGTV miracle. I couldn’t believe it. Matt couldn’t believe it. It was crazy. So this wonderful curve ball meant that now we could refinish the floors instead of replace them. Even with a 203k, there’s a change order process (like any construction project). So we did the change order and our contractor was able to hire the project out to our flooring guy (who we already know and trust). She hired him directly to do the work and the money to pay him came directly from our escrow. It was awesome. The other positive thing is that any leftover money in your project escrow account at the end of the project goes DIRECTLY toward the mortgage principle amount. So that’s a bonus! 🙂

Would you do it again?

YES. Tomorrow. But Matt says no new houses in 2020.

What are your tips for others using the same loan?

  • Be prepared for the closing process to take longer than “typical” since there are so many approvals necessary for the renovation plan and proposal.
  • Find a mortgage broker who has experience with 203k loans…our mortgage broker was even a contractor in a former career, so that was so, so, so helpful.
  • Have a plan for refinancing as soon as the window is open to do so. With 203k loans, you have a certain number of months (I believe it’s 6) where you can make no changes to the loan. But as soon as the project is over, it pays to have your house re-appraised and then refinance. 203k loans will never be the most competitive interest rate. That’s not what they’re designed to do. But refinancing last fall saved us 2 percentage points and that’s GREAT!
  • If you want to do DIY alongside your contractor, find a contractor who is willing to do that. We LOVE ours because she’s game for anything! I found an amazing door, 2.5 inches thick, warped as all get out, but gorgeous. I sanded it down, finished it, found reproduction hardware…all of it. She figured out how to hang it so it works and is beautiful. That teamwork is necessary at all levels and for each project.
  • Prioritize your projects so that what your loan is covering is the most do-or-die stuff. It’s usually not the sexy stuff, but it’s the necessary stuff. We made a list with our contractor as soon as our inspection was over, and used that list as the basis for her entire plan. We compromised on a few things that we will do later on instead of right away, but we didn’t compromise on any of the most important projects.

 

Olivia, Dunellen, NJ

@livlivinglife

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Olivia used a 203(k) streamline renovation loan to purchase her 1853 Victorian home.

Which type of renovation loan did you use?

We used a 203k streamline loan to purchase our 1853 Victorian fixer-upper.

Did you do any DIY as part of the loan?

No – though we plan to do plenty of DIY once the work from the loan is complete!

What led you to use a renovation loan?

We had a complicated experience trying to purchase a duplex that was habitable but needed some work. We were in underwriting for a conventional loan with a low down payment through a state program when we discovered that the broker had made a mistake and we were no longer eligible for the program. Due to the higher down payment requirements for a duplex, we couldn’t get another conventional loan, and due to the condition of the home we were not eligible for a standard FHA loan. It was clear that a FHA 203k was our only option, so we found a contractor and started the mortgage process all over again in just a week.

Positives and negatives of your experience?

This is particular to our situation, but the time pressure for us was a huge negative. It becomes so much more complicated once there are bids, a contractor, more parties involved. If I had known we were likely going to do a reno loan, I would have planned more strategically for what we would borrow and the work that would be done. All of the work from our bid is very basic, the bare minimum of what needs to be done: masonry repair, fixing crumbling plaster walls, replacing broken windows. A positive is that it’s been a real jump-start on making a fixer-upper beautiful; sure, we could have scraped the trim and repaired the plaster ourselves, but it would have taken much, much longer and not been as professional. Having 30k of work put into the home in the first six months is a huge step forward in restoring it and making it not just livable but beautiful. Another positive is that, while we’re not done with the inspections yet, the actual construction has been much easier than the mortgage process was.

Would you do it again?

Yes! I wish I had a better idea what this would be like before I started, but I would definitely do it again, especially for the chance to bring a beautiful home back to life.

What are your tips for others using the same loan?

  • Start with budget – how much can you reasonably borrow? Remember, this is on top of the purchase price, and will include labor, materials, taxes, and a buffer for overages. For FHA, the process is the simplest if you borrow less than $15k for the reno; a bit more complicated if you borrow more than 15k but up to 35k; and the most complex if you borrow more than 35k.
  • Have an idea what you want to do to the house. Minor cosmetic repairs (e.g. painting trim) are a whole different ballpark than redoing a kitchen or moving walls.
  • Start searching for contractors early. It takes quite a bit of paperwork from them to even get through the mortgage process, and they may need to complete the work before you move in. It will take both of you to complete all of the requirements from start to finish, so it’s immensely helpful to have a good rapport.

 

Nicole, Winchester, NY

@bklyncontessa

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Nicole, an interior designer, used a renovation loan for her current home.

Which type of renovation loan did you use?

Hmm, do not remember which type but it was attached to a conventional mortgage and we had to use a broker our lawyer recommend to obtain it because all of the others required the house to be dewinterized for appraisal and the bank that owned it (foreclosure) would not dewinterize.

Did you do any DIY as part of the loan?

DIY was expressly forbidden, like if you used the loan to buy paint, a professional (licensed/insured) had to do the painting. We didn’t realize until the end, that while still using the paint example, we could have done the prep & priming ourselves/self-funded and only brought in a painter for the final paint part. There was also a stipulation that under the loan we could only have three vendors, so we had to hire a general contractor who handled the billing/payments to the additional contractors and he booked us a fee for doing so. It also made it harder to find the contractors because they didn’t want to have to go thru a general contractor.

What led you to use a renovation loan?

We HAD to have a reno loan to purchase the home because of not being able to dewinterize. There had to be immediate funds to repair the heat system and plumbing if necessary.

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Nicole describes her home as a shingle Victorian with Richardsonian Romanesque limestone stonework.

Positives and negatives of your experience?

Positives: We could buy the house.

Negatives: Everything: the deadlines complicated everything. Like for example, our dining & living rooms had original Victorian stained glass windows. The windows were in VERY bad condition with lots of the lead missing entirely, rotted window frame, etc. I could only find one stained glass restorer in the area who was doing a museum project and booked 9 months out. So, instead of being able to wait for the contractor to be available, we had to remove the windows (crate and store them) and spend THOUSANDS to replace them with new windows that we do not want. Now we cannot afford/justify the cost to have the stain glass restored, and in the end the new windows cost more than the restoration would have. Or, the fact that we had contractors (plumbers) flake.

Really the deadline and contingency release (so close to deadline) complicated everything. Really, a 90 day deadline is asinine. We literally had zero time either to find contractors or to even really consider what needed to be done and what we wanted to prioritize.

What are your tips for others using the same loan?

  • Considering that I am an interior designer and I felt overwhelmed with the process, I really do not see how an average home buyer would do well with the process. I think the best advice I could give would be to prepare ahead of house hunting. If you know you want an older/historic home before you start looking, find a good GC/builder and interior designer first. Then, research and educate yourself on the funding process since I learned that most realtors are entirely worthless, especially when it comes to pre-WWII homes.
  • Other advice would be … have a “contingency” ready to go. Like if you have reno loan for $50k, have $100k worth of work planned and estimated (both large and small projects) So that when the 20% contingency is released you are in a position to utilize it fully. Or, if you’re in my position where, because several contractors flake and you have a major project fall through, you can use that money toward another larger capital project. Like for us, the bathroom project was $15k so basically less than a month out from the deadline we were left with over $20k and had to scramble to use it and to be honest in the end “wasted” the money. Since ideally reno loans are capital improvements and appliances aren’t really capital improvement or adding to curb appeal.

 

Adam and Emily, Nyack, NY

@risingsunnyack

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Adam and Emily with their pup Quincy, a 5 month old whoodle (wheaten terrier poodle mix) and cat Bootsy, a 13 year old tuxedo cat.

Which type of renovation loan did you use?

FHA 203(k)

Did you do any DIY as part of the loan?

The loan covered the demolition of three unpermitted spaces (finished basement and bathroom, upstairs “apartment” kitchen and bath), as well as some floor repairs to significantly water damaged floors. For the rest of the house we’ve been DIYing, but our contractors did all of the major demo and floor repair that was included in the loan.

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Adam and Emily used a 203(k) loan to renovate their Nyack, NY home.

What led you to use a renovation loan?

Our house is a wonderful 100 year old house that has incredible bones but needed help to get it mortgageable. We weren’t able to get a mortgage for the home unless it was a reno loan, because of the extent of the demolition and repair work needed to make it fully inhabitable and mortgageable. (And we could definitely not afford just buying the house with cash.)

Positives and negatives of your experience?

The stress of putting together the FHA loan paperwork, making sure we were meeting all the requirements, double checking all of the materials we submitted for the loan, and making sure our contractors had all the right licenses and permits and insurance was a negative. We were competing against other all cash offers, and were lucky we got everything together and submitted in time – and accepted!

The positive was being able to wrap some of the heftier upfront necessary renovation costs into our loan and mortgage payment. The house also appreciated in value much faster, we think, than if we’d done everything ourselves. About six months after we bought our house, after the reno loan work plus months of our own DIY had been completed, the house appraised for $75k more than our appraisal at time of sale.

ED8E6B84-359E-4A8B-8491-9FB13A2289B9
The 100-year-old home was uninhabitable before Adam and Emily bought it.

Would you do it again?

For us, we wouldn’t have this house without the reno loan. It was the only way to buy our home and we would absolutely do it again.

What are your tips for others using the same loan?

Research your loan up front and know what’s required, what documents you need from your contractor and anyone else, and if you can – find a good mortgage broker who will help you through the process. Getting through our FHA loan was a team effort for sure, but we’re very happy with the results!

I should clarify – all of the work included in our reno loan was done by our contractor. But for the rest of the house (outside the work done under the loan) we’ve been mostly DIY.

 

AJ, New Orleans

@sixthwardswimmer

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AJ used a 203(k) renovation loan for her property in New Orleans.

Which type of renovation loan did you use?

I used a 203k Home Reno product financed through HUD. It wasn’t exactly the product I wanted after doing lots of research, but it was the product I could get approved for given the extremely poor condition of my house (which had been vacant since being gutted just after Hurricane Katrina in 2005). Paperwork took nearly six months—almost as long as construction!

Did you do any DIY as part of the loan?

I really wanted to do a lot of DIY as part of the Phase 1 reno, since I’d done and learned quite a bit while fixing up my last house. However, my contractor wanted to move things along as quickly as possible and there are time restrictions with the HUD 203k loan, so I relented and will be doing DIY to my heart’s content during Phase II.

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AJ’s renovated bathroom.

What led you to use a renovation loan?

As previously mentioned, my house’s poor condition and finances pushed me into using this kind of loan. The house had been empty and getting wind, water, and termite damage for 12 years and it had never occurred to me that a house could be turned down for improvement funds because of poor condition. The house wasn’t in good enough condition to live in and tackle projects step by step, so I had to find a loan.

Positives and negatives of your experience?

Cons:

Tedious and confusing paperwork. My dad’s a realtor and thankfully he could walk me through most of it, but it really did take from December to late May to get everything filled out and approved.

My contractor had to work with an inspector every step of the way, but that didn’t necessarily mean that either of them were very transparent with me when it came to budget. I bought lots of things out of pocket and when they were stolen or damaged, there wasn’t much accountability.

My loan was sold after I closed with a bank and team I really trusted.

My loan getting sold complicated construction because the new company used forms and platforms that neither contractor nor inspector had much familiarity.

Pros:

I bloody LOVE my house. It’s an old, weirdly shaped tiny thing, but I think she’s kind of perfect.

Working with an architect, contractor, and bankers who were invested in saving a strange piece of local history showed me how many people in my town value it.

My neighbors value all that went into this project and have been lovely. I think they feel how much I love this neighborhood.

Would you do it again?

Hm… for the right house? If I could take a sabbatical from work? Maybe. I only finished this project 3 months ago; I might feel differently in 3 years.

What are your tips for others using the same loan?

  • Do lots of homework—I read about every loan product that might be a good fit, then interviewed bankers at each lending institution to get a better sense of what was possible and what it might be like to do business with them. Lots of banks didn’t make the cut.
  • Ask questions and then ask more questions. A house is a huge investment and no one should make you feel like your questions related to your home and financial situation are an inconvenience.
  • Visit your job site often—it keeps everyone accountable.
  • Communicate expectations and deadlines clearly—having done your homework will help here, especially if you’re a woman working with a condescending male contractor.
  • Prepare for delays, disappointments, and for the process to eat your life.
    My project took about two months longer than I anticipated. It sucked because I was paying rent and for storage units on top of my loan payments.
  • Not every finish the contractor and I agreed on actually became a reality. There are some issues of workmanship that wouldn’t exist if I could’ve done those projects myself.
  • Be prepared for decision fatigue—This one is actually part of the “eating your life” thing. No amount of pinning or planning prepared me for the days where I was furiously trading texts or emails while also trying to teach full time. I wasn’t great at very many things during my project. I was definitely the friend who flakes all the time too.

 

Rachele, Richmond, VA

@rrrrachele

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Rachele and her family.

Which type of renovation loan did you use?

Homestyle.

Did you do any DIY as part of the loan?

All of the demo, floors, some painting.

What led you to use a renovation loan?

It was a historic property that needed a substantial amount of work on the systems. The end result was a fully renovated house that was worth so much more than what we paid at a totally reasonable budget-able payment.

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Rachele’s home before the renovation.

Positives and negatives of your experience?

Positive, we had a wonderful contractor. We stayed on budget and time.

Negative, was it was the dead of winter and no heat while we were inside ripping walls and ceilings, scraping paint, etc.

And then having to refinance after it was done was a positive and negative, we had to have a higher than normal interest payment but then there was a cut in rates when we refi’d and our payment was lowered substantially because of the appraisal being so high.

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Rachele’s children helping with the landscaping.

Would you do it again?

Absolutely, I love that we were able to add value to our neighborhood and be a family living there vs. a flip company.

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Rachele’s home after their renovation, using the Homestyle loan.

What are your tips for others using the same loan?

Get a contractor who’s done it before. Someone who gets the draw process. Otherwise, just do it. It’s so much easier than finding another way to finance a big renovation after the initial paperwork is complete.

 

Erica, Orlando, Florida (currently Charlotte, North Carolina)

@ms.erica_marie on Instagram

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Erica in her Orlando home, which she renovated using a 203 (k) loan.

Which type of renovation loan did you use?

203K with Wells Fargo over 8 years ago. (WOW! – how??)

Did you do any DIY as part of the loan?

I didn’t do any “DIY” as part of the loan per se. My father was handy and assisted with getting the home to a mostly habitable status before I made the house my “dream home.” This meant the bigger things like jacking up the house and leveling out floors in some spaces, doing new subflooring throughout the home, removing exterior walls down to the studs, laying new floors throughout home with exception of the sunroom (future kitchen, master bath and closet). This meant not living in the home for almost 6 months and when I did finally move in, doing without a functioning kitchen and shower. For me, it was worth moving out of my parents’ home without a kitchen and shower to have freedom in my own space again! Ha! I had a functioning slop sink hooked up to a hose with a bucket I emptied, a toilet and a sink in my one functioning bathroom. The YMCA saw me daily, to say the least! For the 203k portion of the loan, my contractor did down to the painting and the knobs for the kitchen doors (I was over home projects at this point). I did a lot of leg work with researching and price matching etc. – like 3 months of this and it was ongoing of course as things shifted with budgets. For example, I did my roof within the loan and I had more wood replacement than expected. I didn’t have this excess spill over into the “buffer” portion of my loan but I adjusted in other areas like bargain hunting for a scratch and dent master vanity because one side was going against the wall anyways. I also did splurge on amazing things like a full fridge and full freezer –man how I miss that!

What led you to use a renovation loan?

I was a very ambitious 23 year old women, working at a hotel, desiring my dream home — a little bungalow in Downtown Orlando. Knowing at $9.78 an hour that home would be a far stretch for me for some time, I started searching for homes that could work in my budget, knowing I was handier than most and had a dad who needed a project after being newly retired. After researching first time home buyer programs and different local/state buying programs and options I just kept digging for what option could work! Continually lucking out over a year to almost two years into my search, and might I add many, many lenders and brokers later, I learned of a renovation home loan program where I could get the home of my dreams!

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Erica’s kitchen post-renovation.

Positives and negatives of your experience?

I will never pray for patience again? No, seriously. It was a joy, and an adventure with many different ups and downs along the way! My parents were there to support me during the crazy which I so appreciate, and without my dad’s hard work prior to doing the 203k portion of the loan I wouldn’t be in the financial position I am in. I know this position is a privilege, and that privilege of knowledge, experience and financial reward does not go unnoticed – despite this season of life still getting brought up after a few bottles of wine on family holidays! *Eye roll* So, take that as the one major negative but I am sure my family wouldn’t trade any of the experience, nor would I!

Would you do it again?

I honestly don’t know. Currently, as a single women in a great financial position thanks to this loan, no. I am in an amazing *almost new, close 2/28* home in Charlotte, NC. My home is in a great area and pretty large for a single woman. The risk financially I would take on to buy another home or a new home to reside in while I did this type of loan again (to make a true quick profit) would be a huge risk financially I wouldn’t choose to take in this season of life. If I was in a different season of life — say, married, desiring a different location and size home which I otherwise wouldn’t be able to afford without a 203K loan, YES! This loan allows you additional freedom to look at homes from another lense, the renovated lense, and bring old beauties back to their original form. What a skill and honor that can be if your heart desires it!

What are your tips for others using the same loan?

You are in control of your budget and line items, not your contractor. Find a contractor who is on your team and shows flexibility (maybe cancel last minute, does this ruffle him?) with these types of loans. Remember to be flexible yourself as well — not all obstacles can be overcome easily or with a shorter timeline. Know that your end date WILL change, there is a plan but that plan will change as different obstacles are found during the process. Basically, level set your expectations to be very, very low! It’s like traveling with children, it will be an adventure and anything can happen but you will get there eventually regardless! My other big tip would be to do your own research if you want to save money and really make your funds work for you! You can get discounted appliances, tile, light fixtures etc. which will allow you to splurge on other items or not make compromises on that glass enclosed master shower that you never knew could cost close to 3k!

 

THANK YOU so much to everyone who submitted their experiences for this post! Talking about home buying and finances and renovations is so personal, and I’m so thankful you all chose to share that. I hope this post is helpful to others who are considering this type of loan!

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