Slow and Steady Wins the Race?

Not much to report really. I'm 3 weeks post offer being accepted and in the last week and a half it's mostly been a waiting game on getting the sub bids in and getting my contractor to pull it all together. He's pretty old school so it all goes down on paper. My reno loan specialist finally got him to send her what he had and I put it into excel, fleshed it out a little, cut some stuff and sent it back to her. She discussed it with him today and made a couple more changes/clarifications and will order the appraisal tomorrow. There's a lot of basics that have to be done so HVAC, electrical, plumbing, roof, flooring, windows, doors etc - all those basics came in close to $60,000. Then to remove walls, reframe, enlarge the master bathroom, do the kitchen etc - the total bid came in at $80,000 and that's even with me taking on responsibility for removing the dangerous trees ($1600), buying the appliances, and a few other things. I'm hoping we can come in under budget on a few things!

The subs have arrived!

More subs!

The next hurdle is the appraisal because I can only borrow 50% of the ARV as determined by the appraisal. According to my loan specialist, "The bid plus contingency and fees can’t be more than 50% of the after improved value." 

She says the house will need to appraise for $186,000! That's the reno amount of $80,000 + 10% contingency of $8,000 + fees. 

Hmmm. I'm really not sure about that at all. I just don't see it appraising for that much so I guess I just have to wait to see what the appraiser thinks. If it doesn't appraise for that amount, I'll have to scale back. 

Patience is Key . . . Plans Change and Delays are the Norm

Yesterday my contractor told me that the plumbing and electrical bids had come in higher than he expected (although the window bid came in lower than either of us expected so yay) and so I sat down with my home design software (with its lovely CAD features) and retackled the bathrooms.

Here's the current layout . . . and what we *hoped* to do . . . .

The main problem is that homes in the south are mostly slab-on-grade (so concrete) with no crawl space or basement. This means that when homes are built the plumbing is set and if you want to move it later you have to bust up the concrete. To enlarge the 2 bathrooms and move the tubs/showers, toilets, and sinks around would be pretty costly, but I think I came up with a solution.

The lovely Guest Bath

The guest bath will stay the same size (it's ~8ft x 7ft) and the tub/shower will remain in the same place. By removing the weird closet on the left, the vanity can move down and we can then turn the toilet and position it better (right now it faces the door!), which will still mean busting up concrete, but less of it. We'll leave the hall linen closet.




Over in the master, I'll create an L shaped bathroom and, instead of the large 8 x 5 walk-in shower we had planned, I'll use the existing tub space to put in a 60" x 36" tiled shower with glass frame, move the toilet down slightly, and add a double vanity around the corner. The plumbing won't have to change much, but the space will be larger and more open.  I'll still divide the room to create a large master closet.

 

The master suite should then look something like this:

That's the plan for right now, but as I'm learning, plans change all the time. Sure, I'd prefer to enlarge both bathrooms, but I have to find a way to get most of what I want without breaking the budget so compromise is the name of the game. Luckily, I love playing with the design software and see each bump in the road as a challenge!

On the HVAC front, there's currently a package system (this means all pieces are outside) which I'll replace with a more efficient split system. The current ductwork runs under the slab and the vents are in the floor. We'll close all this off and run new ducting through the attic and put in ceiling vents.

We need to do a little reconfiguration in the kitchen too, but I leave that for another post since I'm sure it will change several more times between now and next week!

The painter came today as did the plumber (his second trip) and the flooring guy is coming out on Monday or Tuesday, We're still waiting on final bids from everyone, which is frustrating because my lender can't move forward with the renovation loan until the complete bid is in. My lender's reno specialist needs 30 days from receiving the bid to getting me to closing and every day closing goes past 8/31, I have to pay Wells Fargo $50 (this is normal when buying an REO). Every day we delay getting the bid in is costing me money.

But this is the nature of things in the foreclosure/renovation world.

Inspectors and contractors and subs, oh my!

Tuesday (8/8) was a BIG day. My home inspector came down from a city about 2 hours north, but it was worth getting him to do it because he's also a HUD (U.S. Department of Housing and Urban Development - and yes, the HUD website says "Secretary Ben Carson" on it) consultant and any time you do a Fannie Mae Homestyle Loan or an FHA 203K loan, you need a HUD consultant. Basically, I was able to kill two birds with one stone because, having seen the house in its current condition, he can now conduct the feasibility study - basically what needs to be done to bring the house up to standard. The feasibility study is focused HUD minimum standards - so what does the house need to be safe and does it make financial sense to do so. It focuses less on the fancy kitchen you plan to put in.

The HUD consultant also monitors progress of the renovations and works with the lender and the contractor to issue "draws" on the renovation funds for payments. You pay a fee to the HUD consultant based on the cost of renovations. For me, assuming something around $60k-$65k (I hope!), that fee will be around 800 bucks. You can read more about the role of the HUD consultant here.

The consultant (who by the way, looked like he'd stepped out of a 70s art class) took about an hour to go through - it was pretty quick since we plan on replacing and fixing the bad stuff. The good news is that while he identified lots of major issues, they were all things I was aware of and all things I plan on fixing. We did discover, in turning the water on at the street, that there are a couple of leaks we have to fix.

The better news is that the house is structurally sound.

The even better news is that the roof is trussed, which means that the inner walls can come down without us needing to have a beam! Open floor plan anyone? This means I can modify my floor plan to make the kitchen/living/dining even more open. I can go from this

to this

Originally I thought I would have to keep some of the wall that's currently separating the kitchen from the living room and have an L shaped kitchen.

Later that same day we had a lot of the subs come through so they could see what needed to be done and work on their bids. We had plumbing, electrical, windows, drywall, and the framer. It was pretty exciting and very cool to sit around with my contractor (who is in his 70s) and his subs, shooting the breeze and hearing their stories.

Now I am waiting on the subs to get their bids in to my contractor so he can pull it all together and give me a final price. I'm a little nervous. If it's a lot higher than expected, I'll have to modify my plans. Of course, what I can borrow also depends on the ARV appraisal, but we can't order that until the bid is in and the appraiser knows what we plan to do! It's all a little chicken and egg. Seems to me that if we propose a plan, but the ARV doesn't support it and we have to scale back, that the scale-back itself might change the ARV . . . .

The other thing I did (today): I found a little house to rent since it's becoming very clear that trying to move the cats into a construction zone for 2-3 months is a bad idea. I've found a cheap(ish) little house just down the street from "The Boyfriend" that I can get on a short-term rental. So basically the cats and my stuff will live there and I will live and work at/from The Boyfriend's house.

Patience is Key - Finding a Contractor

So I had a house, but I didn't have a contractor and having a contractor was a big deal because I'm using a Fannie Mae Homestyle renovation loan. If you don't know what this is and want to finance a fixer-upper you need to go learn about it. Basically, you can borrow for the purchase of the property and up to 50% of its  as completed "after renovation value" (ARV) for repairs. So let's say you buy a house for $50,000 and the appraiser says that when it is finished it will appraise for $110,000, you can borrow 50% of that $110,000 for renovations. Math: $50,000 + $55,000. The Homestyle loan does require at least a 5% downpayment so you can only borrow up to 95% of the ARV, but it is much more flexible than its cousin, the FHA 203K renovation loan. You can find a good explanation of both the FHA 203k and the Homestyle loan here.

My lender has me working with 2 people - one for the regular mortgage approval stuff and one for the renovation loan. L (the reno loan specialist) gave me a list of contractors in my area on the "approved" Fannie Mae list. You can work with any contractor, but if they aren't approved they have to get approved (I'm told it's not complicated) so that's an extra step.

Closing on these loans is complicated because there's a lot more to do than for a typical loan.

1. Get a contractor (ideally already Fannie Mae approved) and have her/him write up a bid that details the proposed repairs/renovation and cost estimated for labor and material.
2. Get an inspection
3. A HUD consultant must also do an inspection. The HUD consultant will detail everything that is a MUST DO for health and safety. You hope this doesn't eat up your whole reno budget, which, by the way, you know nothing about yet because you need . . . .
4. The appraisal. The appraiser will give an as-is appraisal and then, based on your plans for renovation and what the HUD consultant says must be done, will give an appraisal for after the work is done. In my case, given the comps in the area run from $120k to $170k, I think that a safe number for my after reno appraisal would be $125 - $140k. I'm hoping to be able to borrow about $60k. My goal is to not be in the house for more than $125-$130k.
5. The lender will then work with the HUD consultant and the contractor to draw up a proposed timeline (work is supposed to begin within 30 days of closing and not take longer than 6 months).

As you can see, there's a lot to be done on the reno side of it to get to closing.

After a few days of calling around I finally got in touch with someone on the approved list and, it turns out, he had hoped to buy it himself to flip! It seems my spidey senses were on, because his estimates for repairs were close to mine - a bit lower because he would not have done as much to it as a flip whereas I actually plan on living in it. He was also amazed I got it for the price I did. So there's that.

So I have a contractor. We've walked through the house. I've been madly working in my HomeDesigner software drawing up floor plan options.

Here's a list of what HAS to happen (that I know of so far):

• New roof
• New fascia/soffits
• All new windows and replacement of casings
• New HVAC
• New flooring throughout
• Upgrade electrical panel from fuses to circuit breaker
• New front door and new french doors in back

Here's a list of what I want to happen after that:

• Take down walls between kitchen, dining, and living room to open it up
• Complete gut job of kitchen
• Take one of the four bedrooms and convert to master bath and closet
• Expand family bathroom into the space the current master is in (seriously - both bathrooms are tiny)
• Possibly open up living area into 4th bedroom which means adding a bedroom at the front
• Converting the weird bonus room that used to be a garage back into a garage

The current layout

Just one of my many proposed layouts (I have to wait on the plumber to know what is realistic for the bathrooms and we have to figure out whether I have trusses and what's going on with the walls to determine how open we can go without raising costs through the roof.

I'd be taking a 2340 square foot 4 bed/2 (tiny) bath house and turning it into a 1750 square foot 3 bed/2 bath house but the master suite, garage, and open living space will be worth it (I hope)!

So what's next? On Tuesday, 8/8 (in 2 days!), the HUD consultant who is also an inspector is coming to kill 2 birds with one stone and I will then finalize the plans with my contractor, submit the bid to my lender, and get the ball rolling. I know that there's no way I can close on 8/31, which is when I close on my current house. This is a pain because although I have a place to stay, my 4 cats do not! I'll deal with that when I have a better sense of closing. 

Patience is Key - Finding a Foreclosure

A few months ago (somewhere around February), I decided I wanted to sell my house, find a fixer-upper, and move. It's not that I didn't like my house, it's just that it wasn't making me money and wasn't likely to start doing so. It's in a nice subdivision, but at 14 years old, was being beaten down by all the new construction. I figured it might see appreciation in line with inflation, but that was about it. So after doing some home DIY in the kitchen and master bath, I popped it on the market and it sold in a week. I felt (and still feel) pretty good about that considering other homes on the neighboring streets are lingering (60-150 days!). Hint: They are overpriced.

My kitchen reno. I painted lower cabinets grey, took out the hop-up bar, had granite installed, put in a new sink/faucet and I topped it off with a shiplap backsplash (most of the work done by me, except the granite of course).

With the sale happening much faster than expected, I was in the unfortunate position of HAVING to find a house ASAP, which is never a good combination if you're looking for a foreclosure or short sale. I did find a couple almost right away. One sold the same day and the other, a VA foreclosure, had potential so I made an offer. What I didn't realize then was that the VA almost never comes down on their asking price (VA listings are handled by VRM, by the way) within the first 30 days. I made my offer when the house had been on the market for 7 days. They countered at full asking and I walked. I was back to square one. A couple of weeks went by and I was beginning to worry - closing on my current home had been set for 8/31/17 and I knew I would need at least 30 days from contract to close, and I was beginning to get awfully close to deadline.

And then I found THE HOUSE - a Well's Fargo REO that needed some major work. It was listed on a Friday, I went to see it on Sunday, and then had to wait until the following Friday to put in an offer! See, the way Wells Fargo does REOs (it's part of their punishment for contributing to the housing crash a decade ago) is that for the first 7 days of a listing, you can go see the house, but you can't make an offer! Testing my patience! Days 8-15, only those planning to live in the home can make an offer on it. This "owner-occupancy" rule is meant to put homes back in the hands of owners instead of investors. After day 15, the home is available to anyone so I knew I  had to get my offer in on the first day. I found a contractor, who was the friend of a friend, and he did a walk-through with me and gave me a rough estimate of what it would cost. I had arrived at similar figures so felt pretty good about that. Unfortunately he didn't have time to take on the work, but I felt comfortable making an offer so I did.

Asking price was $65,000 (the house is a 1968 brick ranch in a good neighborhood - 2340 square feet but only because at some point the garage was converted to a bonus room). I knew at least one other owner occupant offer was coming in so I offered $65,317 with $1950 to closing. This offer went in on Friday morning.

On Monday afternoon, I noticed the listing on the Wells Fargo REO page had changed to pending (not that I was obsessively checking it or anything) and since I had not heard anything I figured that was that so I texted my agent to tell her we needed to get back to the search. She called me back about 30 minutes later and said she had a counter for me: $66,000 and $1980 to closing. I accepted!