Stages of a Home Renovation Project
In the first series of our Bridgeport Project, we looked at reasons why home buyers are choosing to leave the suburbs and settle in hot new neighborhoods like Bridgeport, Chicago. Many of these home buyers are considering home renovation rather than buying a turnkey home. In this installment, we’ll look at common home renovation project stages.
Home renovation projects and total gut rehabs are not for everyone. According to some television programs, a gut rehab takes approximately 30 minutes to complete. What you don’t see on HGTV are all the planning phases involved in a home renovation project. There are many important steps that must be taken before you go tearing down walls and tossing out the kitchen sink.
Step 1: Determine Your Budget
Before you jump into buying a new home that needs renovations, (or decide to renovate your current home) your first question needs to be, “What can I afford?” This is where you must sit down and figure out what you can reasonably afford to buy or spend on home remodeling costs. This budget needs to be based on your current income and debt.
It may be helpful to consult an online budget calculator like Remodeling Magazine’s Cost vs Value Calculator to get an idea of what remodeling projects cost. It’s wise to add another 10 – 20% to cover hidden costs or unforeseen expenses. You might need extra if you find mold behind that wall you just tore down.
Sometimes you can cover the cost of a small remodeling job out of pocket. However, if you’re planning major cosmetic updates or a total gut rehab, you’ll need a loan that can over the cost to purchase the home as well as the cost of repairs. Remember a home renovation loan is one loan that includes a fixed-rate mortgage. The loan encompasses the purchase (or refinance) cost of the property plus the funds to complete renovations all in one.
Step 2: Meet with a Mortgage Expert
If you are like most Chicago home buyers, you are going to need a home renovation loan to purchase and renovate a home. With our Bridgeport Project, the homebuyer worked with mortgage expert Christine DePaepe to determine what type of loan was best to fit their individual financial needs and goals. She also helped the buyer choose the best loan program that would fit the home they were purchasing.
Christine and her team helped the buyers of the Bridgeport Project review their credit, pre-approved them for a specific loan amount, determined what their monthly mortgage payments would be, and introduced them up to a HUD Consultant. The HUD Consultant is the most important piece of a home renovation project. The consultant typically takes the place of a home inspector, and guides your renovation project from start to finish. The HUD Consultant is responsible for onsite visits, providing a work write-up detailing required and desired home repairs. He or she oversees the entire project to facilitate draws and inspections when the general contractor completes the renovation work.
Step 4: Meet with a Realtor
Now that you are ready to purchase a home and know what your home purchase budget is, it’s time talk to some local real estate agents. Ask family and friends for a referral. Research the top local agents who work with buyers and select one with good credentials. Check out local listings to see which agents are” in the know” about the local housing market. You’ll want to select an agent who will help you on the path to finding your dream home.
When you have selected an agent to work with, discuss your needs and wants. For example, the number of bedrooms and baths, open floor plan, parking, school districts, and near-by entertainment and transportation. Remember location, location, location is key!
Step 5: Meet with General Contractors
Once you have found a home that needs small renovations or a major gut rehab, don’t try and go it alone. Talk with your HUD Consultant and interview at least 2 general contractors. Discuss with them your home renovation desires, mandatory repairs, and overall budget. Both the HUD Consultant and your selected general contractor will help you draw up plans for your dream home that fit your needs and your overall home budget.
Before your home renovation loan closes, the HUD Consultant will complete a work-write up and cost estimate along with the required architectural exhibits needed for your home renovation project. For all projects over $50,000 of repair work, the HUD Consultant must include inspection fees, costs for permits, contingency reserves, title updates and any architectural fees in his cost estimate. These write-ups serve as a protection to the borrower so they can compare apples-to-apples estimates when reviewing bids and selecting a general contractor.
When your home renovation loan closes, all repair funds are put into an escrow account. Your selected general contractor can then begin renovation work once permits are received by the local municipality. The general contractor is paid usually in 5 escrow draws once work is completed and inspected and approved by the HUD Consultant.
Bridgeport Home Renovation Project: Total Gut Rehab Story
For our Bridgeport home renovation project, the buyer decided to go with a HomeStyle Loan from Guaranteed Rate. A Fannie Mae HomeStyle Renovation loan enabled our buyer to purchase a home that needed a total gut rehab. The loan included the cost to purchase the property plus all the necessary funds for the renovation and repairs in one loan. The total loan amount is based on the “as completed” value of the home rather than the present value.
Bridgeport Renovation Project
Purchase Price: $190,000
Renovation Costs: $247,500
Total Loan Amount: $371,875
This is a 4-bedroom, 4 bath, multi-family, 2-story home. The property had had 4 total rental units when purchased. The homeowner is converting the property into a single-family home. Home was purchased in “as-is” condition with a complete interior gut rehab. The following plans have been drawn up and agreed upon by the homeowner, a HUD consultant, general contractor and architect:
Here are examples of the architectural plans for this renovation projects once completed:
Currently, permits are in and demo has started in Bridgeport. Check out how “pretty” things are looking as the general contractor completed tearing down the home to the core. Check back for more updates as this home begins to take shape from a multi-unit property into a single family home.