Financing your Fixer Upper

People often ask us "how the heck are you paying for all this remodeling" of your Fixer Upper?!?! well the answer is fairly simple and I'll outline it for you below.  Financing our fixer upper is a multi-step process with various funding.

1- Buy a house that's WELL BELOW what you can afford.  Yes, yes... we all know the rule: don't max your budget and buy the least expensive house that meets your needs.  But this is real!  This is primarily how we fund our projects. We bought a house $100,000 under our budget.  Yeah, that's right.  We qualified for a mortgage of $215,000 but we bought a house for only $112,000.  That means that our actual mortgage is only about $130/month (our actual payment is roughly $600/month after taking into account our escrow for homeowners insurance and taxes).  We could have afforded almost $1200/month (which was what we were paying in rent before buying our fixer upper).  That's easy math and easy money: $600 extra per month to play with.  Sometimes we use that money to finance other things (a new sports car and family car) but typical that amount goes directly into our savings account in order to finance house update projects.

2- Put down the MINIMUM amount necessary to qualify for your loan.  Yeah, this is probably contrary to what you've heard, which is to put down as much as possible to make your loan amount as small as possible (thereby decreasing your interest etc...).  Well, this just doesn't make since when you buy a fixer upper.  Chances are that when you buy a fixer upper you will have a lot of upfront costs and unplanned expenses. This means that you need a large chunk of money ready to spend and ready in case of emergency.  Many of our early projects were funded by a chunk of about $10,000 that we had ready.  That's right, I'm advocating for you to have the money in cash BEFORE buying the house in the first place.  This means that you WON'T spend more than you already have.  It also means that you wont be paying interest on additional funds.  CASH, CASH, CASH.  The most important way to finance a fixer upper.  HAVE CASH READY.

3- Whatever you do, DON'T Take out a CONSTRUCTION LOAN.  That's right.  DON'T DO IT. Construction loans are a great way to end up spending more on your home than it's worth.   Construction loans are extremely high interest short term loans that you can use to rebuild or renovate parts of your home.  Unless you bought your home for dirt cheap and the work is being done by a fast-working professional crew, this is NOT the loan for you.

4- Take out a Home Equity Loan as a LAST RESORT.  This is a great last option if you have unforeseen needs that you just don't have the cash on hand to take care of.  For example, you find out that even after passed inspections and clean "bill of health" your home ends up with a serious mold issue that will cost you thousands (or a new roof, new heat pump, hot water heater, flooded crawl space, etc...).  This type of loan takes the amount you owe on your home compared to the estimated value of your home and lets you take out a loan for the difference.  In other words, you will owe what your house is worth.  The danger in this is that there is no fall-back.  Your at your max on your homes' value.  Any more money that you put into the home will put you in the negatives.  Not good.

5. Beg and plead with your relatives for free help.  I just had to throw this in because our family has been instrumental in helping us.  They have offered us free help at every turn.  Their labor is much much cheaper than paid labor and much more enjoyable.  But this brings up a good point: utilize your resources.  Sure, you could probably learn as you go... but if you have a father-in-law who knows how to do roofing, or you have a parent who is willing to do your dirty insulation work, USE THEM.  They want to help, so give them a job.

6. Two Words: Child Labor.  We have three kids.  They LOVE to help us do housing projects.  Painting stuff, scratching stuff up, ripping stuff out, destroying stuff... KIDS LOVE IT.  Give your kids some jobs that they can do.  After-all, it's their house too.

BONUS: Have your husband and kids scower the forest for plants to plant in your garden.  Ok, Ok... it sounds crazy... But for real!  This is how we have been able to plant much of our garden!  We have had the worst time trying to find plants that will grow in our sandy, dry (but strangely often flooded), densely shaded, forested yard.  The best way we have found to find plants that will actually grow in our "native" crazy habitat is to go to the source of the best natural flora: the woods next to our house.

Do you have any other suggestions for how to finance your fixer upper projects?  Please share your comments below.

The Time We FINALLY Closed On The House Of Our Dreams

Those of us who are lucky enough to be homeowners know the elation when your offer is accepted on a house.  We know the since of "WAHOOOOO!" that comes with finding out that your going to be a homeowner.  But what we don't anticipate is all the extra work that comes with the closing process.  There are people to hire for pest inspections, home inspections, mold inspections, there are appointments to make (and attend!) for each of those inspections, there is never ending paper work to get loan approval, there's trips to the bank and post office for certified checks and "good-faith" deposits, there are home insurance companies to research and price-check, and there are often bumps in the not-so-smooth road to that final closing day.  This is especially true if you are purchasing a Fixer Upper.

For us, the logistics weren't difficult to fulfill because we had a very helpful mortgage underwriter who was incredibly patient with our late night calls and last minute emails.  We also had a realtor who was more than happy to help us navigate the inspection trenches.  We had been pre-approved for a mortgage that was 2 times the cost of the house we were purchasing so we knew that there would be no re-negotiation of mortgage terms or conditions (more on financing a Fixer Upper in another post).  What we didn't expect was the mortgage approval for THIS specific house.   Apparently, the complications with buying a fixer upper are enormous.  

When you purchase a house, your mortgage company will send someone out to appraise the house.  That means that they will take an inventory of the house's assets and compare the house to other houses of similar age and location.  In our case, the complication was that our house was going to be compared to other 1970's houses of "similar condition and location".  In our area, that meant dilapidated, small, often terrible condition homes.

BEFORE: Pressure washing the bricks, covering exposed window framework,
and taking down broken gutters were essential to giving our house enough value
to pass our appraisal.  Every. Little. Bit. Helped.

You see, we were lucky to find such a large fixer upper in such great condition.  It's not typical in our area for fixer uppers to not be mold infested (we live in a hot coastal community), or otherwise highly damaged (floor rot, foundation problems, roof issues, etc).  Our 1975 home has 2200 square feet (compared to a typical 1500 square feet for homes of similar age in our neighborhood) and was for-the-most-part well taken care of by it's previous owner until he was too elderly and sickly to maintain it.  The previous owner had hand built the added 700 square foot Kitchen and Carolina Room addition.  He had also converted the garage into a closed-in climate controlled room in the house.  These two things are highly sought after in a fixer upper and often are the first homes snatched up when they come up for auction.

But other houses in our market had not been so lucky.   If the appraiser valued the house BELOW our agreed purchase price we would loose the house.  Sure, we could then renegotiate the price (adding potentially another month to the already lengthy process) or we could put more money down out of pocket to cover the difference (money that we had intended to use to renovate the house), but in this highly competitive fixer upper market and any delay could have meant loosing the house to someone who could pay cash.  So, we did what any self-preserving Fixer Upper enthusiast would have done: we fixed some of the house before the appraiser came.

BEFORE: The roof was completely covered in debris, so one of our first orders of business
 was to leaf-blow the roof to expose the close-to-new shingles, which we knew would
increase the value of our home.

AFTER: the roof was in great condition after being cleared.
This is definitely an asset our appraiser would look kindly on.

Now, I would NEVER recommend putting money into a home you don't own.  Raising the value of a home that your about to close on isn't typically a great idea.  You see, if you make a house worth more, than it's a possibility that the seller will come back and ask for more.  It's also a possibility that the seller will back down from your offer and keep all the improvements for themselves.  This is a highly risky and potentially counterproductive thing to do.  But, in our case it was all we could do to make sure our home was appraised for enough to cover our loan.

Previous roof leaks (that had been repaired)
were never repainted (which could be a "red flag"
for the appraiser) and stained needed to be removed
(another "red flag" for potential floor damage)

We had our inspector, a close friend, come out before the appraisal so that he could point out potential issues that could lower the value of our home or deem it "un-livable".  My husband worked countless hours fixing un-finished window framework, pressure washing (to make the house LOOK nicer) and covering issues that could be considered "red flags" for the appraiser (covering exposed utility boxes, repainting water stains on the ceiling of the enclosed garage, ripping up stained and potentially damaging carpet, fixing leaking pipes, scrubbing the scum left on walls and floors from years of neglect).  Then the day came for appraisal.  

We increased the aesthetic appeal (because first impressions are essential for home value)
by pressure washing, raking rocks, and covering exposed landscape tarps.

We waited on pins and needles that day.  Knowing that it would be cutting it close.  Our work paid off.  The houses added square footage, mostly-new roof, and the work that we'd put into the house increased the value to roughly $20,000 more than our purchase price.  The appraiser gave us a list of as-is comparables that were all valued less than our home and knowing that our home was a fixer upper, he also gave us a list of post-renovation comparables so that we could see what our home's potential was (comparables post-renovation were valued $50-$70K more than our home, with the highest valued home in the neighborhood being sold a few years prior on our street).  This was great news.  It meant our Fixer Upper was worth it.  Worth the hours.  Worth the extra stress.  Worth the investment.

My husband and I on closing day.

We went into our closing day knowing that our house was soon going to be our home.  A home we could pour our sweat and tears into to make it our own.  A home our children could grow up in, helping and learning right along side us.  We knew that this house was going to be a great adventure.

Do you have a house closing story you'd like to share?  Did you face complications in your house closing, inspection, or appraisal?  Share your comments below.

10 Questions to Consider Before Buying a Fixer Upper

Buying a home is almost always a stressful process, and buying a fixer upper can often have added issues that make it an even more difficult process.  Here are 10 things to consider when buying a fixer upper:

1.      How is the house being Sold?

             ⚬   Foreclosures on the Market (listed on MLS sites)- these properties are bank owned and sold as is.  Any problems that arise will be up to you to fix.  Many mortgage companies have minimum standards to get approved for a loan.  Homes that don't meet minimum standards wont be approved.  These homes often have been up for auction but the purchase price compared to potential resale price were too close for home renovation companies to be interested. We purchased our home while it was in Foreclosure on the Market.

       ⚬   Pre-foreclosure- This is perhaps the hardest time to purchase a home.  These houses are still technically owned by an individual but are in the process of being listed for Auction.  This means that the owner still has the ability to pay off the house and stop the foreclosure.  

             ⚬   Short sale- You can potentially get a great deal in Short Sale.  Often, homeowners who are having trouble paying their mortgage and are at risk of foreclosure negotiate with their lender to sell the house for less than what is left on the mortgage.  These types of negotiations can often take months and sometimes fall through (if the bank denies the sale or if the owner decides to keep the house). 

             ⚬   Auction- many Foreclosure homes go on Auction before hitting the regular market.  These homes are often in the worst shape and need the most work, so are therefore the cheapest homes.  In our area, these homes are snatched up quickly by home renovation companies.  They also often require cash in hand.  Often it's hard to determine when and where these auctions are happening.

       ⚬  Regular Market (listed on MLS)- Fixer uppers on the regular market are often homes that are owned by aging owners or are starter homes and are typically only in need of upgrades.  The trick here is to recognize the cost of upgrades and use those costs to negotiate the price to account for those expenses.  Typically these negotiations can include price adjustments for floor replacement, roofing, moisture issues, and paint.  Purchasing a Regular Market home can be tricky because the price of upgrades might mean your investing more than the house is worth.  Always consider the home market values when considering this type of fixer upper.

2.    How are the “Bones” of the house? Some projects are easily DIY'ed while others require professional help.  Make a list of projects you are willing to do yourself and what you will need a professional to do.  Take that list and decide what projects you already know how to do and what projects you will need to learn to do (Youtube is a great resource).  

       ⚬   Structure- Are the walls, flooring, joists/roof structurally sound?
       ⚬   Membrane- What are the age and condition of roofing and insulation?
       ⚬   Foundation- Do the crawl space or basement show signs of cracks or moisture?
       ⚬   Electrical- proper wiring? up to code?

             ⚬   Plumbing- Are there any noticeable leaks? Is there adequate pressure? What type of pipe is                                  used? Also consider the age and type of water heater.

       ⚬   Heating/cooling- Age and type of furnace, air conditioner, or heat pump? 
       ⚬   Doors/Windows- What is their age and condition? Do they have good insulation and seal? 

3.      Are there Damages from Insects and/or other Creatures? These could be costly to repair and often illuminate other issues with the house.  Our house had small gaps in the connections between the soffits and roof which allowed a handful of squirrels to nest in our soffits.  In our case, they were easy to clean out and the squirrels hadn't caused any irreparable damages, but they could have easily caused unseen damages in the attic or roof had we not known what to look for.  Upon inspection we also found a few small areas of termite damage on interior walls which had previously been repaired.  Damage to structure or a current infestation need to be seriously considered before purchasing because the costs of repair can often add up quickly and can lead to unforeseen issues. 

4.       Is the Price worth it?-  This is perhaps the most complicated part of buying a fixer upper.  The tax assessed value of the house, the market value of the house, the market value of the homes around it (pre renovation and post renovation), and the market value of homes similar to it (pre-renovation and post renovation) are all important to consider. Consider also whether you have the money for renovations already or if you will be funding these renovations over time.  If you have a chunk of cash to fund all the renovations then kudos, but if your like the rest of us and you will be funding this a little at a time make sure that the cost of the house is low enough that you will be able to set aside cash each month to make additional repairs and renovations.  ** I will discuss how to find this information and compare it in more detail in a future post**

5.       What Projects NEED to be done? Needed projects include moisture control, roofing problems, electrical work, plumbing, insulation, and things that are needed to make the house livable. Landscaping, painting, upgrading appliances, adding trim and new fixtures all should be considered "Wants" and not "Needs" because they make the house aesthetically appealing but don’t affect the livability of the house.  It important to estimate the costs of the needed projects and the wanted projects separately and then prioritize projects based on their necessity.

6.      What are the Estimated Costs of Repairs? Some projects can easily be done DIY for a low

cost while others require greater upfront costs. Its also important to consider what needs to be replaced vs what can be restored.  Bathroom renovations can cost up to $6000 depending on the repair vs replace variables. Similarly, kitchens can cost upwards of $15,000 if all of the appliances, counter tops, cabinets, and flooring need replacing.  Restoring degraded kitchen cabinets and flooring can be a great cost cutter. Roofs can cost upwards of $10,000 and professionals hired by the hour (like plumbers and electricians) can often cost $85/hr. Replacement of doors and windows can cost up to $300 each.  Also consider the costs of adding or replacing insulation, repairing or replacing septic systems, hot water heater replacement, and air conditioning or heater replacement.  The costs can add up quickly!  

7.       Do you have a Renovation Timeline?  Set realistic goals.  If you’re planning to DIY many of the projects and living in your home during the renovation then it will probably take much longer than expected to do some projects. What things need to be taken care of before you move in and which projects can wait?  Often people have some length of time from the date of closing until they have to be out of their previous residence (for us it was 5 weeks until our lease was up).  That is a good time to complete many of the necessary projects to make your home livable.  

8.       Why do you want a fixer upper?  This is not a business that an naive can get involved in easily and most people that do this to make money end up losing money the first few times, so if you’re looking for a HOME don’t treat it like a business.  This could mean sacrificing some of the “entertaining guests” appeal and finishing that newer complete homes have.  It could also mean living with rooms that are partially painted or in mid-construction for often months at a time.  We lived with painters tape on our door knobs for 13 months and patched unpainted walls and ceilings from October 2015 until now. 

9.       What is the area like around the house?  Is the area up-and-coming or is it on a downward slope? Purchasing a home that is in an upcoming area means that your home value should increase in the coming years while purchasing in an area that is becoming increasingly blighted means you may have to wait longer to see your home value increase.  **I will discuss this more in a future post**

10.   Do you REALLY want this? Living in a fixer upper and doing the renovations yourself is not always fun, glamorous, or easy. Expect strain. Expect disruption. Expect unexpected costs. Expect the unexpected. 

Is there something you think I missed?  Is there a topic you'd like me to cover in more detail?  What are your thoughts and concerns about buying a fixer upper?  Share your comments below.  And don't forget to subscribe to posts in the top right of the page to get future post updates!

The Time We Almost Bought A Swamp House

Have you ever found the perfect house? I mean the PERFECT house.  Only to have it fall through and you realize that maybe it wasn't the perfect HOUSE? Yeah, that happened to us.  When we first found out that our offer had been out-bid (by a cash offer) and that we lost what we thought was going to be our dream house I expected devastation.  Of course, this wasn't the first time we lost our "dream" house (see The Time We Learned What Makes Buying A Fixer Upper Come to a Screeching Hault) so we had some experience to pull from, but amazingly we weren't devastated at all.  And it was for a very simple reason: we didn't want house for the right reasons.

The boys tromping around in the swampy forest behind the house.

I see it now, the error in our judgment on that adorable little house.  It was a cute little ranch out in the middle of no-where with just under 4 acres of swampy forest for my husband and the kids to tromp around in.  It had a cute little pond in the back corner for our Kayak and fishing.  It was quiet and secluded.

The corner of the pond on the back of the property.

The house itself needed very little work.  It had curb appeal issues, no fence (we have a little barky dog that the kids lovingly call "Plup Pup", short for Pluto), the kitchen needed some minor maintenance (the cabinets were cheaply made and partly falling apart), and it had yard drainage issues (which excited the Landscape Designer inside me). There was certainly plenty to keep up busy.

Our youngest child standing in the poorly drained area right behind our back door.

Perhaps you are beginning to see the problem?  After 2 trips out to visit the house, I had taken NO PICTURES of the actual house.  I had roughly 20 pictures of the kids playing in the swampy forest with my husband and I had a handful of pictures of the poorly drained back yard, but the house itself was (according to my pictures) of very little interest.

Our oldest playing in the swampy forest. You can see the back corner the house in this picture,

When our offer for the house was rejected I thought we would be devastated.  I thought we would have to go back to months of searching for another house that could excite us the way this one did.  But we weren't devastated.  In fact, we were only mildly disappointed.  And it is for a simple reason: we wanted the property, not the HOUSE.  This house wasn't even *really* a fixer upper!  We had fallen in love with the "nature" around the house but had sacrificed all the things we wanted in a house!  It turns out, all we needed was to learn the ONE THING not to look for when buying a fixer upper: the property.  Sure, buying a house with nice property is desirable, but when your looking specifically for a fixer upper it's important not to compromise the things your looking for in a house just for the property.

This ended up being a blessing in disguise.  just months later South Carolina faced the worst flooding it had seen in recorded history (The 1000 Year Flood).  This sweet little house, it's property, and the area surrounding it saw severe flooding for weeks.  While we don't know how this specific house faired in the floods, the area around it was devastated for months while homes were gutted.  Shortly after, the county faced a record breaking mosquito season, just as the threat of Zika was rising.  Just one year after that, South Carolina saw yet another record breaking flood caused by the inland runoff from Hurricane Matthew.  The area was again devastated by flooding and hurricane damage.  Not getting this house and it's property was truly a hidden blessing.

What were some of the things you looked for when buying a house?  Have you had similar situations where you've gotten caught up in a single aspect of a house that make you want to sacrifice some of your necessities?  Please share you experiences, questions, and helpful comments below.

The Time We Learned What Makes Buying A Fixer Upper Come To A Screeching Hault

I dreamed about this day when I was little.  Yes, some girls dream about Prince Charming and dressing up for their senior prom... Not me, I dreamed about owning my own house.  Well, I take that back, if I'm going to be completely honest with you I dreamed about Prince Charming, but my handsome Prince had a tool belt and paint smears on his carpenter jeans.  My dream guy would be able to get down and dirty on house projects and he would be right there beside me, working on the house of our dreams.

I should also clarify that I didn't ever want the typical "American Dream" house.  No, I didn't want the perfect-suburban-new-construction-never-needed-anything-keeping-up-with-the-Jones' kind of house.  I wanted a house that needed work.  Lots of work.  I wanted to find a house that I could sink my highly *un*skilled hands into.  Yeah, I might have been an idiot with unrealistic dreams, but I knew what I wanted and I was willing to put in the work to get it.

When my husband and I married we went right to work trying to find a house.  I kid you not.  We really did go right to work trying to buys a house.  But, there were always things in the way of purchasing a house.  We found quite a few great houses that we loved.   One of the very first houses we looked at wayyyyyy out in the country (seriously it took 20 minutes to drive there from town and about 40 minutes to drive to work).  It was very picturesque.

The property and views for the first house we fell in love with.  June 2012.

The house itself was all the things my husband and I wanted in a house.  It had gorgeous old details (like the glass door handles).  It had space for our growing family (it had 5 bedrooms which we dreamed of filling with children, playrooms, and office space).  And it needed more work than it would take a small construction crew with years of training to complete in a reasonable amount of time.  It was perfect.

The first house we fell in love with.  Man did that thing need work.

The problem was, a construction crew had been working on this house, and they had been doing a fantastic job, but they had also run out of money.   Yep, the place was a certified money pit.  But that little fact didn't deter us!  We continued to move forward on the *naive* assumption that we would find a way to come up with money where the previous crew hadn't.  We even drew up sketches of what this house would look like.

What I imagined the front to look like.

What I imagined the street-side to look like.

The list of things this house needed was lengthy and the more we looked into the details of purchasing it the more got added to that list.  Cosmetically it needed a bit of work to make it livable.  It needed some weather proofing exterior finishing, floors in a few of the main rooms, a kitchen (that's right, it had NO KITCHEN) and it also needed wall finishing and fixtures in most of the rooms.  Our plan was to live in the house and complete the work ourselves.  We knew it would take a long time to make the house into our vision, but that was part of the appeal.

But what we didn't realize was that there were two other major details that needed immediate addressing: the suicide french doors on the second floor (which my husband and I could both see our 2 children accidentally falling out of) it also needed electricity (yes, apparently there was some kind of issue where the house had been set up on a temporary electrical system due to the Sump-Pump in the crawl space, but it wasn't actually connected to the grid in any official way).  These two issues were the downfall of our dreams and made buying this Fixer Upper come to a screeching hault.  After a handful of trips out to the house and about a month of working on finalizing the process, the loan fell through.  Apparently you have to actually be able to LIVE in the house in order to get a loan for it.

We were pretty crushed, but we knew deep down that deep down there must be a reason that this house wasn't going to be ours.  This problem isn't uncommon to home buyers looking in the Fixer Upper market.  Please share your experiences in the comments!