The back of the house before we started. Ignore the swaybacked roofline. We just live with it.
Renovation: Only For the Handy and the Wealthy?When I would see examples of people doing huge renovations, especially people who weren't sweating away swinging hammers for 18 months, my internal narrative oscillated between incredulity and envy. How did people on normal salaries do beautiful renovations? Without a trust fund, gifts from parents, or a really high-paying job, how was it possible to improve a home on a large scale? Simply buying a home, especially with today's low interest rates, seemed grownup and challenging, yet accessible. But doing major renovations? Impossible on our middle-class salaries with the kind of tiny savings account you have after years of graduate school (him), and non-profit work (me). Our jobs are also fairly time-consuming, so while we were prepared to put some sweat equity into a home (and oh did we!) we knew our limits. We wouldn't be hanging drywall, learning plumbing, or installing appliances. So, were we stuck? No. That was back when I assumed that renovating meant coming to the table with cash in hand. Given the right circumstances, a renovation or construction loan is what can make this sort of thing possible.
Tearing out the wall between the dining room and old porch (part of the old kitchen).
How We Thought About Our RenovationWe live in a moderately-priced Midwest city, one that doesn't have the outrageously high real estate prices of the coasts, but also not one at the very bottom of the barrel. Interest rates and home prices were very good (though they have stayed fairly stable in our neighborhood). We don't have kids, and we were debt-free, with some modest savings. We felt that it was it was the time to take a calculated risk and do what we could to create our dream home now, while we were unencumbered and while the market was good. Our neighborhood has a mix of homes -- some updated with nice little things like modern windows and insulation. (Always a plus!) Others were still stuck in the 60s or possessed of knob and tube wiring and frightening plumbing. This is what we were looking for -- a home with, as I lovingly referred to it, "a tear-out kitchen." Because the other piece of this, of course, is that I am a food writer and cookbook author, and while I've happily made do with teeny-tiny kitchens for all of my professional life, I wanted the grand adventure of designing a better space for my everyday work.
Budget LuxeI also really believed that we could do a kitchen that looked like it cost $50k to $100k for $20k to $25k. Still lots of money, yes, and we are very grateful to have had even that big of a budget! But kitchens cost a lot of money, especially good ones with solid appliances. So when I called my renovation "budget luxe" it means that our goal was to choose the best appliances and finishes for our price and budget, and to press down costs wherever we could. I get really thrilled by saving money and I felt we were able to do this kitchen for much less money than I expected at first. We hoped to take the money we saved on buying a house, and then plug it right back in in renovations, thanks to a mortgage-renovation loan.
My husband looking at our new foundation, for the addition. What you don't see is the foundation we had to pour under the old porch, which was held up by 2x4s stuck in sand. I do not jest. Ka-ching!
How Mortgage-Construction Loans WorkLet's do some pretend math. Let's say you find a house for sale for $100,000. Maybe it's even foreclosed. You know that houses of that size, with a little upgrading, could easily go for $200,000 in your neighborhood. So you go to the bank, hopefully with a respectable credit score, and say, "Hey, how about you give me $150,000 to buy and renovate this house?" The bank says, "OK -- we think that sounds like a good investment!" You buy the house, invest the $50,000 in renovations (approved ahead of time by the bank), and then everything is rolled together into one mortgage. Instead of having a $500 monthly mortgage payment, your payment is more like $700, since the cost of the renovations is rolled into your mortgage. These mortgages are not something you're going to find advertised at national lenders like Chase or Wells Fargo. They tend to be very local, very specific to your area. We got our loan from a bank that is based in our state, and they were great to work with.
This is how we made our renovation happen. By far the bulk of the money we spent came from the bank and is wrapped into our mortgage. We found an unrenovated house going for a very low price, even for our neighborhood, and even after plugging what felt like a huge amount of money into it, our mortgage is still less than what we would have paid for an updated, remodeled home -- and it's all done to our taste, not someone else's. The key part in our planning was to spend on things that could be supported by our neighborhood, and not blow our home's value out of proportion. We updated the kitchen, added two bathrooms, and those amenities mentioned above: modern wiring, plumbing, and non-crumbling walls. And while respecting the age of our home, we did everything in a more modern, clean-lined style, which is rare and hard to find here. But we know that there's a strong desire for it. So while we plan on staying here for twenty years, if we had to sell for some reason, we are confident that we would recoup our (and the bank's) investment.
Blessed block and foundation.
Blessed block and foundation.
Hey, subfloor! Walls are about to go up.
The Challenges of Renovation LoansBut a renovation loan is not a cakewalk. There are major challenges -- you need to be extra organized, with plans in hand for the home you're planning to buy. Ideally you would have a realtor to guide you through this process. You do need a sizable down payment, which we got by scraping together every last bit of savings and maybe a few quarters from under the sofa cushions. The bank needs documentation of the work you want to do, and they will want it up-front, before closing, which means you need to be ready to hustle through inspections and get a super fast set of tentative plans from your architect. The bank will generally not allow you to do the work yourself; they will want a licensed, insured contractor to protect their investment. Your contractor needs to be able to be paid in installments throughout the project, often more slowly than he would like. For us, making all this happen felt like a tightrope walk, in the moment. But all in all, it's an excellent option for people like us, who had never owned a home before, and who found a completely unrenovated house in a good neighborhood. One last note: We had some money to put into a down payment, but if we hadn't had enough, there is an FHA loan called a 203(k) that we also considered. These are loans that also offer money to renovate, and they are very flexible and powerful instruments for buying and renovating distressed properties. They are not as well known as they should be (and the bureaucracy involved with handling one can be intimidating). But if you have the renovation bug, this is an option you should consider.
Still looked like this inside, though.
The Benefits of Renovation LoansSo. We found a house that was going for quite literally half the cost of similar but renovated homes in our neighborhood. We took it to the bank and got a mortgage that included an additional 50% over the purchase price to pay for the renovations. It was a major clutch-the-pearls, breathe-into-a-bag moment, but we knew it was the right decision, and the right location for us. This loan was what made it possible for us do a full renovation on a house that needed the work, and to invest long-term and build equity in a way we never could have done otherwise. In the very final tally, after all the work was done, we ended up with a monthly mortgage payment that is 20% less than what we were paying in rent! For us, a renovation and construction loan made a lot of sense, and it explains how we were able to do such major projects on this house.
Walls and everything! This is actually happening. We pinched ourselves.
Other Ways to Finance a Kitchen (or Major Home) RenovationBut what if you're not actually buying a home? What if you want to do an upgrade on a home and you're short of cash? There are so many other options, of course. Home equity loans, straight-up old-fashioned savings, interest-free credit cards, and bartering. Some people are fine with moving into an unrenovated home and doing a lot of work themselves, slowly over the course of years, teaching themselves as they go. Everyone's story is different. If you did a kitchen renovation, how did the financing look to you? Did you invest everything at once, like us, or go more slowly? Was it worth it, in the end?
New joists in the old porch area, which connects to the addition. The old ones were slanted and it was easier to replace them. This is the kind of thing that's impossible to plan for or predict when starting a reno!
On Money & the HomeFor me and my husband, our home is really at the center of our lives. It's not just where we live. It's where I work, and where we hope to have kids and stay for years. It's where we have house guests almost constantly (five times in the first six weeks after we moved in!) and weekend dinners. To us, this is what money is for. And I wanted to share our process of thinking about it and financing the process, because I feel that it would be somewhat disingenuous and disconnected for me to show you what we did to the home without also sharing this part. In today's often financially-strapped world, money is not a neutral thing to be shoved under the rug, and how we make decisions about it is integral to the other, more fun decisions like countertops and 5-burner range tops.
A fresh, clean, new addition. With level floors and plumb walls and everything!