Nearing nightfall on a cold winter day, Christian and Laura Dodd are standing all bundled up in their new home, eager to talk up and down about their major renovation.
Earlier this year, when the plucky Oak Parkers first tendered the bid to buy the long-vacant short sale property on the 600 block of South Home Avenue, the 1917 one-and-one-half-story listing was dim, dank and gutted-to-the-studs, a perfect candidate for an extreme makeover.
It was also an affordable way for the couple to own a piece of Oak Park, and rebuild an old starter home here from the ground up.
“We have owned a lot of houses in the various places we have lived,” says Christian, 33, who with his wife Laura, 35, relocated to Oak Park about two years ago so he could take a job with a downtown advertising agency. “We have a dog, wanted a yard, so we started looking not too long after we got here. It was a long shopping process.”
The house on Home Avenue is the Dodd’s second short sale purchase, the first being in Michigan seven years ago.
“That was before everyone was having short sales,” says Christian. “This time, we kind of knew the process, and understood it would take a long time (six months). That is also why we were hesitant to pay for the architectural plans before the house closed, because you never really know. It was a complicated closing.”
Home sweet HUD
Listed at $150,000, the Dodds parlayed a bid of $135,000 for the house and qualified for a $300,000 FHA 203(k) rehab loan. The Federal Housing Authority (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single-family mortgage programs. This one enabled the Dodds to secure a single loan at a long-term fixed rate that encompassed both the purchase of the property and the dollars needed to fix it up.
The 203(k) loan cap is $400,000, whereas the limit for smaller rehab loans, which also fold into a mortgage payment, is $35,000.
Even so, nowadays many conventional lenders either don’t know how to process a 203(k) or don’t want to deal with the extra paperwork and hassle involved with the federal loan program, says Jane McClelland, a co-owner of ReMax in the Village.
“Seeking out a real estate agent, lender and a contractor who are all familiar with the federal lending program is wise,” she says.
For major renovations such as the Dodd’s, it is required that a home owner hire a third-party specialist, or 203(k) consultant. This FHA-approved person worked with the Dodds to assemble a 20-page document outlining the specifics of the renovation, which Christian says is a nice feature. Having the consultant throughout the entire construction process, he says, has provided a series of checks and balances for both the couple and their FHA-referred contractor.
Initially, the amount of the mortgage was calculated based on the estimated future value of the home once the work has been completed. All aspects of the project, including the architectural drawings, were structured into the FHA loan package.
“We had to make a lot of best guesses as to how much things are going to cost,” Christian recalls. “So, you end up with this chunk of money, and a guideline as to what you are going to do with it. Then you have to try and get it all to work together after you close.”
In recent years a homeowner’s ability to find conventional programs that allow for the purchase of a fixer-upper with a home equity loan attached has waned. However, the 203(k) program is a way to do that, but it probably is not for everyone, and certainly not the faint of heart, McClelland says.
“Of course, the problem with these kinds of houses, especially the foreclosures, is that they are in deplorable condition, and most buyers don’t have the cash on hand to put these places back together, which is the value of the 203(k) loan,” she says.
Bang for their bucks
Having closed in July, Laura Dodd says it took six weeks to get the architectural drawings approved by the FHA, and another six weeks to receive approval for the project from the Village of Oak Park.
Since early November, general contractor Anthony Alessi of Chicago-based Synergy Construction Group has built a second floor addition and added new footing around the exterior perimeter of the property. His crews have also upgraded the home’s drain tiles for water management and are readying to install all new mechanicals.
The Dodd’s move-in date is scheduled for March 1.
Once fully completed, the first floor will include great room, plus a new powder room, coat closet, and modern kitchen with a vintage robin’s egg blue stove.
Up the original staircase and under the new truss roofing will be three bedrooms and two baths. Already in place are banks of energy efficient windows, and underfoot will be new oak flooring. The exterior façade will sport three hues, butter cream, green and burgundy red.
The end result, the Dodds enthuse, will be a new house that doesn’t look modern, and is as energy efficient as possible.
“Because of this loan, the Dodds will build immediate equity in their property, and I think that is the beauty of the 203(k),” says the general contractor.
When directly asked if in their life they would consider themselves to be risk takers, Christian, without hesitation, says no. Without missing a beat, Laura pipes in, “well, apparently,” and the couple exchange glances and start to laugh.
“For us, doing something like this just makes sense,” adds Laura, who coordinates volunteers and programs at the Frank Lloyd Wright Preservation Trust. “But, we really think that we would not have had the courage to do this if the house weren’t already gutted, and if we would have walked into a house like this that had walls, we would have said, ‘well… you know,’ and walked out. This house really sort of pushed us to do this.”