Step 9. Sign with a Realtor
You've figured out what you need to do and you are ready to buy a house. It's time to get a realtor. I know what you might be thinking: "I can do this myself, I don't need to pay somebody to sell / find me a home."
Signing with a realtor may seem like a waste of money but it's part of the process and it can be very helpful when it comes time to do the paperwork part of the deal. Another benefit is that the realtor can provide a buffer between the builder and the homeowner when doing inspections.
If you walk into a house that you want to buy and you don't have a realtor, you could go with the realtor that is showing the home but know that they aren't your realtor, they are the homeowner's realtor and there are certain rules regarding dual representation and there is some risk there.
Make sure you feel you can trust your realtor and that you feel they are there to get you your dream house. Also, know that you are typically signing an agreement to work with them for 6 months (although you can negotiate it) and that if you don't find something in that time, you are free to go elsewhere. Hopefully it doesn't come to that and you have a great experience with your realtor.
I'm going to skip the part about selling your house as there are plenty of sites with information on that but know that anytime you are buying a house that is contingent on your house selling, you lose control of the process and may lose your dream house.
Step 10. Making an Offer
You've gone through homes with your realtor and you think you've found the one for you! If you haven't had the builder go through the home with you, you'll definitely want to make your offer contingent on an inspection. This is a standard process to include in the offer and there are very few instances where this would cause an issue putting an offer in on the house.
Your realtor should give you some guidance regarding what your offer should be on the house however with a remodel, it's a little bit trickier due to the potential value of the home when finished. A good rule of thumb is that you don't want to be the most expensive house in the neighborhood. Try to make sure that any improvements you are adding to the house will price the house to the middle or mid to high range of the neighborhood, otherwise you may not get your equity out of the house when you go to sell it.
Know that the price that you pay for the house will impact the money you have from your total budget to do your remodel. Pay $10,000 more to get the house, that will be $10,000 less from your remodel budget.
If your offer is accepted, you'll still have to go through the finance process with your builder and mortgage provider to get approved for the deal. This will take longer than a normal purchase due to the required paperwork and house plans to make sure that the deal is legitimate and that you are getting value for the home.
One side note: Home inventory is at an all time low for recent years and there are a lot of professional builders out there putting offers below list price on homes but offering to pay closing costs and paying the homeowner in cash. Realtors like these kinds of deals because there is less hassle and the builders are quick to get the deal done. If you get into a competitive situation where you think a builder is bidding against you, know that they will probably pay closing costs but bid below cost. If you like a property and you are planning on living there for a long time, have your realtor tell your story to the seller and their agent. People want to sell their house to people who will appreciate the home. If you are keeping elements of the house in the remodel, tell the seller about it. It might help you get the deal.
Step 11. Closing the Deal
So you put your offer in, they've countered your offer (I've yet to hear a real estate deal where there wasn't a counter offer), and you've worked through the details of the purchase of the home. Your mortgage company will start to get involved with your builder regarding the plans and the cost of the project. This can be a slow process but know that it is a necessary part of the process and it is to make sure that all parties are going to do the right thing for the right reasons without spending more money then they are allowed to spend.
The builder will put together a detailed plan of the work to be done with line items for all of the different materials, finishes, and components of the house. The estimates and timelines will be reviewed by the mortgage company and their team which will both validate and approve of the plans. The mortgage company will also provide an appraisal of the home. This appraisal should be relatively close to the cost to purchase the house plus the labor and materials of the remodel. The bank does consider the local market rate for the house but they will be conservative in their estimates in order to not extend themselves.
This process can take 30 - 60 days. During this time you should have an inspection done and if possible, request any additional inspection items such as a sewer inspection (if it's an old neighborhood with old pipes) and structural inspection if it's a major remodel. Inspections typically don't do what is called "destructive" inspections where walls are opened up to inspect the foundation so know that with older homes, there will probably be a surprise or two awaiting you after the demolition process has begun.
Once all the groups have signed off on the deal, you can schedule the closing. From offer to close, this process can take up to 90 days. Keep that in mind and be up front with the seller's agent regarding the close date and your plans.
Step 12. Financing the Deal
Most remodel loans have two components to them. The first component takes care of the actual purchase of the house whereas the second component deals with the remodel portion.
The purchase portion of the financing will work like it does for any home you would buy where the paperwork is all taken care of and you get the keys to the house along with the responsibility of paying for the house. This includes the mortgage but typically not the remodel portion of the mortgage.
You more than likely won't need to pay for the remodel until your builder has actually spent money on the remodel. Here's how that works:
The builder will request a draw of money from the remodel portion from the bank. The draw of funds will need to go toward things that are actually being done to the house. The first draw is typically for permits and some demolition. As the homeowner, you sign off on the draw which is then sent to your mortgage company as well. They will also approve the draw of funds. This protects both you and the mortgage company.
As your builders request draws, the bank will verify that the money that they you have signed off on has been spent on items in the house and that those items are actually purchased and part of the remodel. This makes sure that if $10,000 worth of appliances are purchased that those appliances are actually in the house and working before the bank approves the money to be disbursed. Typically you would between 4 and 6 draws depending on the project.
At the end of the loan, there is typically a portion of the funds left in escrow for any open items that need to be resolved after the homeowner moves into the house. This is usually 10% or so and is at the banks discretion regarding whether they would do an escrow.