By Kimberly Cuachon-Haugh Photos By David Uhrin
A couple's tale of buying their first home--and overhauling it at the same time
After seeing more than 20 houses in the Kempsville area of Virginia Beach, it ended up being a foreclosure property that my husband and I now call our first home.
Neglected for years, and unoccupied for more than a year, it didn't really have that adorable charm, but it did have hidden potential. But having never bought a house or done a renovation before, was our vision going to be enough, we wondered.
Our resilient realtor, Alison Schaefer with William E. Wood At The Mall, advised us that the property was the perfect fit. It had everything on our wish list: 2 bedrooms, 2 baths, a loft space for my office and an outdoor space for al fresco dining.
This ugly duckling would be perfect for a rehabilitation loan, specifically a 203k FHA (Federal Housing Association) for home improvements granted by the Department of Housing and Urban Development (HUD). The loan is not a new mortgage, but with the number of foreclosure homes and short sales on the market, it's grown in popularity.
In comparison to a conventional rehabilitation loan that stipulates a 20 percent down payment, a 203k only requires 3.5 percent down. The attractiveness is the ability to incorporate the cost of your renovation into your mortgage. FHA coordinator Richard Core enlightened me that this loan is not just for bank-owned properties but it is also a loan for existing homeowners who may not have a lot of equity in their property and who are looking to make improvements to their home. A homeowner can re-finance their home at 110 percent of the appraised value after improvements, he explained.
As an HGTV junkie, I naively assumed that I inherited some superhuman sixth sense that I could utilize when it came to buying my first home. The truth is, no matter how many episodes of My First Place, Property Virgins and House Hunters you've seen, they wont brace you for the moment you actually buy a house and decide to renovate it. There are no professional designers and assistants, no warehouse full of props, designer industry discounts or huge budgets.
You never know how long you are going to be living in a property, and our situation had to have the flexibility of selling early in case of any near-future relocation. My husband Josh's executive-level position in the hospitality industry demands that you have to move out to move up. With short-term in the forefront, Alison strongly advised we remain under city assessed value, in line with our comp-set properties, and to have a financial pillow to help pay for closing costs when it comes time to sell. While making a profit and putting that towards a down payment on a future home is part of the agenda, our Plan B would be to break even with that allowance to avoid having to dish out more money at closing.
It is important to remember that the relationship with your realtor does not end once you receive the keys to your home. Alison has been there every step of the way to advise us what's worth touching, what needs to be overhauled and when to reel us back in.
Our house was purchased for $122,500. Our renovation budget was $35,000, with a $3,500 contingency for unforeseeable costs. The renovation plan included a stand-up, double-head shower in the master bathroom, demolishing a drywall project gone wrong in the second bedroom, a redo of the decayed back deck, new flooring in every room and fresh paint everywhere.
When buying a foreclosure property a home inspection is recommended to be treated as personal information for the homeowner. Bank-owned properties are as-is, and the bank will typically not budge on the price especially if you are asking for help at closing. On foreclosure properties the bank is limited by the state to 3 percent of the sales price towards closing costs.
A Class-A contractor to oversee your renovation is a stipulation of the mortgage. He or she will have to be approved based on his or her references and credit. The concept behind this is that the contractor must complete portions of the project in order to get paid. This processing of the funds takes about 10 to 14 business days, and no matter how many times you tell your contractor that the money is on the way, it never seems to come soon enough.
Our contractor stopped working for more than a week because he claimed he had no money to front our project due to financial delays with his other renovations.
Ironically, he managed to have enough funds to enjoy the Masters Tournament in Augusta, Ga. during the week when our home should have been completed.
So, our advice is when your contractor says that something will be done by a certain date, know in your mind that you should double that time frame. While I realize that this is the norm when it comes to construction the frustration is unimaginable when your contractor happens to drop off the face of the earth and no one is working at your home for days at a time.
There is a HUD contract between the homeowner, the contractor and the lender, but I strongly advise that a secondary contract be in place between you the homeowner and the contractor stipulating every single detail such as financial penalties for project lateness. In Virginia a contractor legally has six months to complete a project. (Also, stipulate whether or not the contractor is allowed to sneak into your tool shed to mooch your tools and materials ... )
I cannot stress the importance of being diligent about communicating with your contractor. Hound him or her for a schedule with the completion dates of the various projects throughout the home, and keep track of progress one room at a time. Another vital part of this magical relationship is staying on top of the budget. Don't leave the shopping to your contractor. I advise you to save your money by sourcing as much of the materials as possible. Be sure that he or she is communicating all the financial figures with you every step of the way. Be sure to schedule regular meetings to discuss the figures no matter how much your contractor resists this is your money!
It is said that next to death and divorce, a home renovation is the most stressful thing a family can go through, and not far behind that is buying a first home. Yes, we decided to do both at the same time. No, we didn't know how much it would take out of us. And, yes we can't wait to do this all over again in the future with a wealth of knowledge and experience. I still remember the words of affirmation that our realtor gave us when demolition began. I knew you two have it in you to do something like this, Alison said. It takes a special couple.