This is a post by Adaena Tray. – Anna
“How a 203K Loan Helped Us Get Our Dream Home…”
For years, my husband and I tried buying a house. Nothing ever worked out: bad inspections, bad appraisals, bad sellers, you name it. We had about five deals fall through. One was just two weeks before we were set to close…when my husband was laid off from his job. We didn’t proceed with the purchase and had to move out of our rental since new tenants were taking over. We scrambled to find another place to live. Luckily, we had some money in savings and had just the month before we paid off our last chunk of unsecured debt, so we functioned alright on my one income. After a year my husband found another job.
Once again we began looking at “real estate porn” on an almost daily basis. But by then, after the blow of a job loss, our priorities had shifted. We had become super frugal and our motto was “buy the cheapest house that we can live with.” Gone were the days of looking at homes that the bank told us we could afford. One night, my husband was doing an online search and was all “I wonder what kind of crack den you can get for under $50K?” And wouldn’t you know that’s how we found THE house. It was tiny, very low-priced, in an okay neighborhood, and ugly as sin. I could tell the place had potential though. It was a quaint 1909 gingerbread cottage in the city of Pittsburgh. When we toured it for the first time, I knew it had good bones and a ton of architectural details that could be brought back to life with a little TLC.
We ended up buying the house and taking out a 203K loan. A 203K loan is an awesome product because it rolls the cost of renovations right into your mortgage. We took out a 15-year loan for around $63,000, which included the house purchase and renovations, plus we also contributed about $20,000 towards remodeling upfront. Our teeny mortgage – which is a very small percentage of our monthly budget – means that we can set aside money for other things that are important to us and not be “house poor.” Owning this home is less expensive than any rental we’ve ever had, including our first crappy one-bedroom apartment.
For the sake of full disclosure, I will say that we are a little in debt right now because we went way over budget. We ended up having to buy far more remodeling supplies and home furnishings than we anticipated, in addition to some pricey, unplanned repairs and we had a contractor walk out on the job which ended up costing us extra money.
We have a hardcore 2-year plan for paying off this debt. It’s a short-term sacrifice for a long-term financial gain.
The 203K loan paid for all the professional labor and supplies, including a kitchen remodel, replacing all the electricity and most of the plumbing and more. That said, we ended up doing the non-skilled, time-intensive work on the house ourselves. For about five months straight, we toiled every day after work and on weekends to renovate the house. We’re firm believers in never paying someone to do something that you can do yourself. A few times, we overestimated our abilities, like when I checked out a DIY book from the library and tried my hand at some electrical work. Never again!
All in all, the house turned out BETTER than I could have ever imagined. Our home, The Itty Bitty Kitty Cottage, is the all-time top-rated exterior on HGTV’s Rate My Space website and it was featured in a local magazine too. Crazy! I can’t tell you how many hours we spent power washing the siding, painting, grouting, landscaping, hiring people from Craigslist, dealing with contractors, breaking chainsaws, making trips to Home Depot, etc. to get it looking spiffy.
There are certainly some tradeoffs to the “buy the cheapest house you can live with” philosophy. For one, our place is quite small at just 1,024 square feet. But it’s forced us to declutter, buy only what we love and creatively use space. We no longer live in the trendiest of neighborhoods. We don’t have a lot of the modern amenities of newer homes, such as a pantry, a garage or more than one bathroom. But dang, when we send out our monthly mortgage payment, I feel like a million bucks! We want to try to pay off our house ASAP. I’m 33 now…so many by the time I turn 40?
Have you heard about 203k loans before? Would you consider one?