Author Archives: October Five

Finance a Fixer Upper House with the FHA 203(K) Program

home renovation fha 203kWith housing prices on the rise again, buying a home might be quite challenging for buyers with a small budget. If you’re still looking for a sizable home, but don’t want to shell out the big bucks, investing in a fixer-upper house could be a great option for you.With a little bit of work, you could turn a rundown dump into your dream home, especially if you commission an experienced contractor to do the repairs. However, paying for the house and the repairs might be difficult because many lenders don’t want to finance a house that requires a lot of work.

Fortunately, the U.S. Federal Housing Administration (FHA) – a division of the Department of Housing and Urban Development (HUD) – has the Section 203(k) program, a mortgage insurance program especially developed for this situation. It permits homebuyers to finance up to an additional $35,000 into their mortgage to remodel their home before moving in. The 203(k) loan includes funds for the purchase, repair/improvement costs, inspection fees, and even six month’s carrying costs.

The program is primarily designed to finance the renovation of single family homes which serve as the principal residence. Eligible properties are one to four dwelling units that have been constructed for at least one year. The units have to comply with local zoning regulations. Loans might apply to houses moved from one site to another for renovation. Furthermore, also current homeowners can also use the 203(k) loan to refinance existing mortgages. The program has a six-month deadline for completion, though there are extensions available if warranted.

There are two different 203(k) loan options for homebuyers, depending on the scale of the home renovation project. The standard 203(k) program starts with a feasibility study, overseen by an approved consultant, which helps the FHA determine whether the home repairs are justified. Together with the lender, the consultant monitors the project’s progress and conducts a final inspection after completion. The streamlined version is for smaller, less complex projects where no permits, plans or specs are needed. In addition, the homeowners don’t need a consultant and can just use a certified contractor.

Below are the basic steps that you need to do if you want to finance your fixer-upper though the 203(k) loan program.

  1. Figure out what you can afford.
    First, you need to determine how much you can spend on a new home. Current 203(k) loan programs are 3.5% down and the minimum loan amount is $5,000. Contact a lender to see for what loan amount you would qualify based on your income and taxes. Yet, keep an eye on what you can actually afford and don’t stretch your budget too much. You should also check if the cost of the house plus renovation exceeds check the HUD’s maximum mortgage limit in that area.
  2. Find a house with potential.
    It is smart to find a fixer-upper in a desirable location as this would significantly increase the house’s market value after its renovation is completed. Conduct a preliminary feasibility analysis where you identify what repairs are needed, calculate what the costs will be, and estimate what the market value would be after the renovation. This can also save you a lot of money spent on appraisal/estimates in case you find out it would be too expensive.
  3. Execute a sales contract.
    You need to have a sales contract for the home you wish to renovate in order to proceed with the 203(k) loan application process. The contract has to include a clause stating that the sale of the house is contingent on your ability to receive financing through the 203(k) program. You can also ask the seller to pay the closing costs as this would lower the amount of money you would need to complete the purchase.
  4. Apply for the 203(k) loan.
    Find a HUD-approved lender to apply for the loan. In order to find a lender approved by HUD, you can contact the closest HUD office or visit HUD’s website to obtain a list of lenders. Since the application means extra paperwork for the loan officer, some might be reluctant to help you out, so you need to stay persistent. These loans are approved every work day of the year.
  5. Get an estimate by a consultant/contractor.
    Since the amount of the 203(k) loan cannot be changed once the application is approved, it is crucial to get an exact as possible estimate of the renovation expenses prior to construction. 203(k) loans require at least a 10-15% contingency reserve for such unexpected expenses. The best way to estimate the costs is by hiring a HUD-approved contractor or fee consultant. You can find approved consultants on the HUD website.
  6. Get an appraisal.
    In fact, you will need two appraisals, one for the current value of the house (“as-is”) and another one for the estimated value of the house after the repairs (“as-completed”). The loan amount should not surpass either the “as-is” value of the home plus the cost of repairs or 110% of the estimated “as-completed” value.
  7. Find a contractor.
    The 203(k) program requires that the renovation be performed by a qualified contractor. It is strongly recommended to actually hire a licensed contractor, even if you may be qualified to do the repair works yourself. In that case, you would have to inform your lender early in the application process and they will want to know your expertise in the work you are asking them to finance. Moreover, even if you demonstrate your capability, they will NOT compensate you for your labor, only for the materials. The repair works might take longer and the lender will require a larger contingency reserve if you can’t finish. A certified 203(k) contractor, however, will ensure that the renovation will be completed in a cost-efficient and timely manner. The contractor will be paid through a “repair escrow” set aside by the lender.
  8. Close on the home.
    If your 203(k) application is approved, you can purchase your fixer-upper home. If you can’t move in right away, you can use the six months of mortgage payments that can be included in your loan to pay the mortgage and live somewhere else for the time being.
  9. Adhere to the schedule.
    You have to make sure that the renovation work is being completed with the six-months deadline. The repair fund is held in escrow and is disbursed in installments to the contractor (or to you, if you’re doing the work yourself). A HUD-approved inspector will review the progress of the renovation before each disbursement is made.
  10. Get a final inspection.
    Once the work is completed according to the initial agreement, you will have to get a final inspection. If any money is left over (e.g. if you did the work yourself), it will be applied toward the principal of the loan.

Form and Function

When we start the design process for a custom home, we try to integrate form and functionality. We believe that form is supposed to follow function and not merely serve as an ornament. In fact, “form follows function” is a phrase coined by American architect Louis Sullivan in his article The Tall Office Building Artistically Considered from 1896. He argued that the shape of a building should not be fashioned after some aesthetic tradition, but rather should be determined by the purpose of the building.

Louis Sullivan architect

Louis Sullivan c. 1895

In the early 20th century, influential architect and Sullivan mentee Frank Lloyd Wright adapted and further developed this approach to architectural design, which he termed “organic architecture.” Similarly to Sullivan, Wright argued that “form and function are one.” Organic architecture seeks to integrate space into a unified whole. The style of a building should grow naturally from its environment.

More specifically, “organic architecture” doesn’t mean the imitation of nature’s forms, rather a reinterpretation of nature’s principles. This includes respect for the properties of the materials and for the harmonious relationship between form and function of a certain building. Furthermore, organic architecture strives to incorporate the spaces into a coherent whole where site and structure come together harmoniously. According to Wright, architecture should have an inherent relationship with both its site and its time.

"Falling Water" by Frank Lloyd Wright

“Falling Water” by Frank Lloyd Wright

After World War II, architects like Ludwig Mies van der Rohe or Le Corbusier applied the idea of integrating form and function in a markedly ascetic fashion, which is referred to as modernist architecture. For example, Mies van der Rohe’s “skin and bone” concept emphasized open and transparent surfaces that would make the building appear immaterial and weightless. He also eschewed any decoration that would paste the inherent elegance of the used basic materials. “Less is more” was Mies van der Rohe’s credo.

Ludwig Mies van der Rohe Farnsworth House

Farnsworth House c. 1951 by Ludwig Mies van der Rohe

Even though the continuity of form and function lies at the core of modernist architecture, the style’s implications varied greatly across the pond. While European architects also considered themselves as social engineers who would give millions of people an economical living space after the war, American modernist architecture gravitated towards standardized industrial skyscrapers that came to symbolize the growing anonymity within the corporate workspace.

Nowadays, we moved away from the rigid stylistic rules of modernist architecture and include “extravagant” elements like ornament, complexity, and playfulness that appeal to basic human needs. Nevertheless, we believe that no feature of a residential structure should be superfluous. October Five seeks to design and build an aesthetically pleasing, yet efficiently working custom home for you.

Design Build Construction

Design BuildWith the rise in Design – Build construction, traditional hierarchies of the design and construction industry feel vulnerable, and believe me, I’ve witness a few stubborn architects being wary with the general contractor involved during the design phase.

Traditionally, clients locate architects and commission him/her to design or remodel their home.  Early in the process, everyone is tremendously excited about the design and its possibilities.  Homeowners begin to visualize their day-to-day living in the new spaces – the kitchen flows nicely and the master suite is amazing.  Construction documents are finished, and now it’s time to bid the project; how much is all this going to cost us?

All too often, we witness the frustration, sadness and disappointment of projects being seriously over budget, and we am not talking about a few tens of thousands of dollars; let’s just say well over six-figures. We find this sad for everyone (including the architects) because it doesn’t have to happen.

Design, in parallel and cooperation with “real-time” budgeting sets expectations, eliminates uncertainty and provides a clear understanding of the costs associated with design choices.  For example, a good design-build team can promptly inform you of the costs associated with carpeting versus hardwood floors or walnut versus cherry cabinets.

It’s an opportunity to make informed decisions, weighing costs and keeping the budget under control; like having the budget police involved during the design phase.  “Excuse me, but that hand-crafted tile is $140.00 per square foot, and we are currently budgeted for porcelain at $28.00.”

Design – Build doesn’t just keep you on budget, research on selecting project delivery systems have found that design-build projects are delivered 33.5% faster with a minimum of 6.1% savings over projects designed and built under separate contracts (design-bid-build).  It also eliminates the conflicts that inevitably tend to develop between architects and general contractors with fingers pointing at one another.  With an experienced Design – Build Team, the architect and general contractor work in cooperation.  You know it never hurts to have a second set of eyes look at the plans.

At the end of the design-build process, you can expect a full set of construction and engineering documents along with a detailed budget.  We include elevations of all interior walls showing tile patterns, moldings, window and door placements and alignments, etc.  The additional attention to detail eliminates confusion and subsequent change orders; it also speeds up the construction process – on average of 33.5% faster!


Home RemodelingDuring an initial site visit with potential clients to review a second story addition that included a master suite with master bath, and a first floor kitchen redesign, a concern was expressed by one of the homeowners.  It went similar to this, “After remodeling, if we are going to be into the house for this much money, perhaps we should consider moving to a larger property.”  I got the subtle sense that the underlying concern was not to over improve for the neighborhood.  So we left the couple pondering their decision; they would get back to us later.

A few weeks went by when the clients called and asked to visit a current remodeling project.  After the tour, we discussed their dilemma, to remodel or to simply move.  First we discussed remodeling.  It would keep them close to friends and neighbors they have come to enjoy, and remain in a neighborhood that is convenient to their lifestyle and children’s school.

Next, we discussed the hassle of moving, packing and unpacking; cleaning and painting; new schools and registration; changing your mailing address with the post office, voter registration, credit card companies, driver’s license bureau, friends and family, and so forth; in addition to changing all your utilities.

Additionally, we discussed expenses associated with moving.  Several things would need to be repaired around the house before listing it with a local real estate agent; perhaps about $5-6,000 for minor repairs.  Then moving expenses, another $2,500; followed by real estate fees, mortgage fees and closing costs, approximately 6-7% of the sales price, in this case about $45K.  Of course the new house would likely require some painting, window coverings, a bit of furniture here and there, add another $10,000; quickly the couple saw an outlay associated with moving of over $63,500.

That’s over $50K to do nothing more than move from one house to another.  Sure it’s a new house, but the likelihood that it’s “turnkey” or in perfect condition and not in need of some remodeling or repairs or are slim.

The original remodeling budget for the addition and redesign was $150K, which is reasonable for their goals, but add the expenses associated with moving; well that takes it to another level.  Now they could redo the both first floor bathrooms, replace the existing worn out windows and doors with energy efficient designs, refinish the hardwood floors and paint the entire house.

Transforming their existing home into what they had always dreamed was a better investment, financially and emotionally, than moving into a new home that would likely require modifications.

Custom Cabinets by Crystal Cabinets

If you decided to build a custom home or make custom additions/remodels to your house, you know what you want. You want something unique and high grade that reflects your style and provides maximum comfort, without spending half a fortune. For instance, when you consider the quality, composition and affordability of full plywood box cabinets, it’s hard to imagine a decision to select particle board construction.

Crystal Cabinets, October 5’s first choice in custom cabinets, is unmatched in finish, selections, value and quality. We admire Crystal Cabinets’ dedication and craftsmanship, which we could experience first-hand during a recent tour of their manufacturing facility in Princeton, Minnesota. Even though it’s fairly remote, an hour and a half north of the twin cities, and the temperature dropped to three degrees, seeing Crystal Cabinets’ operations was an amazing opportunity for us.

Crystal Cabinets

If I were to estimate the number of times a human hand touches the collective components, from start to finish, of a single cabinet at Crystal, I’d bet it’s nearly 100 times. I was impressed with the attention to the joinery, the sanding and surfacing of the door and drawer front, and the final finishing. Their hand-work is incredible.

When it comes to finishing, Crystal is unmatched. In partnership with Valspar, they’ve developed “LuxGuard,” a coating that offers excellent coverage, increasing the actual thickness of the finish — you can really feel the difference! The finishes have enhanced depth of color and durability, with a touchable, silky feel.

But back to plywood versus particle board construction, would you really consider installing a four-billion year old granite or marble countertop over semi-disposable Swedish cabinets from the big box store? Sure they look nice, but have you seen what happens to particle board when it gets wet or when it’s tossed into an open fire? It can swell, disintegrate or (in the latter case) release very toxic chemicals. Not good.

Another concern is the binding agent, formaldehyde, used in the manufacturing of particle board. Formaldehyde is classified by the World Health Organization as a known human carcinogen. Crystal Cabinets are formaldehyde free, which is not only better for you and your family, but also safer for the environment.

A few years ago, I heard the phrase, “It’s like putting lipstick on a pig,” and I laughed. Image a beautifully stained cherry cabinet door or drawer front with great hardware on a cabinet carcass constructed of particle board. Got lipstick?

Building Codes – Minimum Standards

Residential Remodel

October 5 recently completed a residential remodeling project that was located directly under the “takeoff pattern” for the local airport.  One afternoon, a young couple had just toured the nearly completed project and was standing outside when an airplane took off.  The wife turned and said, “I didn’t know we are under the flight path.”  Interestingly, two planes had taken off while we were inside the house – a subtle testimony to construction techniques, insulation and attention to detail.

We routinely see missed opportunities to improve the efficiency, quality and durability of new and existing homes.  It’s easy to forget that building codes establish minimum standards and requirements for construction, when really it doesn’t take much effort to exceed these standards and build a quality custom home.  Build it once, build it right, and make it last a lifetime . . . or more!

Sure stubborn attitudes exist for doing things the way they’ve always been done, and the sad reality is that sometimes, the only way to get builders with new programs is through governmental regulations and advancements in building codes.

For this residential remodel, after understanding the house’s proximity to the airport, we made several recommendations during the design phase to mitigate the airport noise that were readily accepted.  First, beef up the wall and ceiling insulation.  This had negligible impact on the budget as labor rates are rarely affected by R-values of insulation being installed.  In addition, after insulating, the interior walls were lined with an air film and the seams taped.

Second, because we are in earthquake country, shear-paneling is required within four feet of certain corners. Many contractors will add ½” furring strips to the face of the remaining wall studs to keep the drywall aligned, when it’s just as easy to shear the entire wall with minimum added expense.  This not only added to the structural integrity of the home, but added to the sound dampening and insulating quality.  Again, the cost was negligible.  No worries about hanging a heavy picture on these walls!

Next, instead of 1/2” drywall, 5/8” was installed with all upper and lower edges sealed in caulk.  This eliminated any small air holes or voids that could allow sound transmission.  In addition, all interior walls were insulated; this had the added benefit of increased privacy for the bedrooms and bathrooms.  Solid core doors were chosen along with dual glazed windows, which were flashed and sealed with silicon caulking.  The additional details required minimal effort with little additional costs, but resulted in amazing results.

When we mentioned to the wife that two planes had flown over while we were inside the house, she politely smiled in disbelief.