203k renovation loan pays off for Logan Square resident
When my brother Justin decided he was ready to purchase a home for the first time in the fall of 2012, he admittedly knew little about his mortgage options or the process itself.
All he really knew was that he wanted to stop paying rent and start investing in a property of his own. As he looked for a home on Chicago’s northwest side, he also researched his mortgage options.
It didn’t take him long to discover that a loan insured by the Federal Housing Administration (FHA) allows for low down payments and involves relaxed credit guidelines. Even better, the FHA’s 203k renovation loan provides financing for the purchase of a home and the cost of its rehabilitation through a single mortgage.
When Justin found a single-family home in Chicago’s Logan Square neighborhood that was loaded with potential but in desperate need of improvement, he knew the 203k was the right option for him. So, he moved quickly and his offer of $260,000 was accepted. He estimated $75,000 for renovations, bringing his loan total to approximately $335,000. His down payment was a mere 3.5 percent, much lower than he initially realized was possible.
Once the sale of the home was finalized, Justin and his wife, Anastasia, moved into the property’s coach house. They lived there for about six weeks as the most significant renovations took place.
“It was grueling, but it was worth it,” Justin says. “We had a laundry list of things to do— entirely new kitchen and master bathroom, new roof, new deck and new fence. It was done project by project, and my contractor was paid by the bank after completion of each stage.”
Over the years, Justin has paid out of pocket to continually improve his home, including the creation of a garage on what was once merely a concrete slab. He partially finished the basement and he now devotes a substantial amount of time to the property’s landscaping. He calls his yard and its garden a “personal sanctuary.”
A couple years after purchasing the home, Justin refinanced. Most of his private mortgage insurance (PMI) had been paid off by that point—between that and a lower rate, his monthly payments dropped a few hundred dollars per month.
“I worked with a loan officer that I trusted and I knew the rate was as low as it could be,” Justin recalls. “That was enough for me to know I was going to be in good hands and get a good deal. The team at Guaranteed Rate was easy to work with and most approvals were done digitally, which simplified the process.”
Justin’s home has recently been appraised for $500,000, nearly twice the initial purchase price. While certainly the renovations and improvements factor in, living in a hot neighborhood has helped boost the price as well. According to DePaul’s Institute of Housing Studies, home prices in Logan Square and Avondale have combined for a 13.2 percent increase in 2016 compared with 2015. Additionally, they’ve skyrocketed since 2000, up nearly 156 percent in that timeframe.
As for Justin’s advice to first-time homebuyers who are on the fence?
“Go for it,” he says. “Consider all your options and don’t assume you need a ton of money to buy a place. The 203k is an amazing loan with great benefits for first-time homeowners. Depending on how much work needs to be done, parts of the process can be trying, but for me, it was definitely worth it.”
Source: Chicago Tribune (http://www.chicagotribune.com/business/ct-chicago-housing-recovery-0427-biz-20170426-story.html)