After 11 years in industry, we decided to put our "experience" to the test.
We bought a home to renovate!
We knew that this would be a time consuming, mentally challenging endeavor (Not as quick as you see on HGTV).
Here is what a former military, 50 something, anal retentive, real estate agent, and his wife and real estate partner, does before the project starts: PLAN!
Before we went into this project we took a hard look at our finances! (We are horrible risk takers)
- Could we afford to buy and renovate a home without selling our present home?
- Could we qualify for financing without selling our present home?
- How much could we spend on a home and spend on a renovation?
- How long could we carry two homes? (How quickly do we have to sell our present home)
We ran spreadsheets, talk to our financial planner, and came up with a strategy.
We then met with a lender who does renovation/construction loans. This step is crucial before you start looking for a home!
Can I qualify for a loan to purchase and renovate a home? If so HOW MUCH?
Construction loans are structured differently than a conventional mortgage. Much differently with their terms, how you use the money, and how you can convert the construction loan into a conventional mortgage!
The lender will require a full itemized estimate of what you will be doing to the home. You cannot go and ask for a $200,000 construction loan if you do not have a $200,000 itemized estimate for the work to be completed! The lender will not give you $200,000 at one time for you to pay your builder as necessary. Your builder will have to provide a draw schedule which is a schedule of the overall project. If your first item is demolition, with a cost of $10,000, then the lender will deposit that amount in your account. Before each scheduled event, the lender will send a representative to inspect the work being done. Remember that the lender is taking the risk in this project!
You have the financial portion under control.
The next step for us was to find a builder!
- A builder who is established
- A builder who has references
- A builder who is insured and bonded
- A builder who has all licenses necessary to pull permits
- A builder who knows how to work with a lender that issues your construction loan
- A builder who will look at a house with you, and give you an estimate on renovation cost, before you put an offer on a home
- A builder who listens to you the client
- A builder who is realistic and has your best interest in mind
An opportunity presented itself within walking distance of our present home! A home on the lake with its own boat dock! A home with "good bones" that needed a significant renovation.
Our builder walked the home with us several times, gave us solid estimates on the cost to renovate, and a conservative time frame to complete the work.
We met with the lender again to look at our cost
We ran through our personal finances again
We looked at the time frame to coordinate when we will put our house up for sale (we are staying in our home until the renovation is complete)
We were ready to put an offer on the home! Some aggressive negotiating but we reached an agreement!
We cannot emphasize enough to our clients that a lot of planning goes into making a decision on a home. It is easy to get caught up in the emotional aspects. However if you do not have a sound, realistic financial plan before you start looking, you set yourself up for a lot of disappointment. If you get in over your head then you will spend more time worrying about making the next payment and less time enjoying the home.
The next step was getting ready for the renovation process! Part 2 coming soon!