I spoke with a “Self Help” borrower I closed on about a month back and after the conversation it dawned on me….One of the reasons so many of these loans tend to end up with either the bank or the borrower disappointed with the way the project went is the that like my mom used to say “your eyes are bigger than your appetite”.
He said “I am trying to do what would cost someone that wasn’t doing the work themslves about $80,000 and I am trying to do it for $35,000″
It dawned on me after the conversation that this is exactly what gets a lot of folks in trouble with these loans…You decide to tackle more than you have budgeted for. I would rather they budget for $80K in work, and get it done for $35K. After the work is done the principle is reduced by the unused escrow account and you can recast the loan based on the outstanding balance to reduce the monthly payment. By doing it this way you don’t have to worry about blowing the budget halfway through and not being able to finish the project. That is not to say that the project won’t get done, but what can and I have seen happen is that while you are making these additional repairs you come accross unexpected repairs and additional expenses that you didn’t budget for. If you have started a project you didn’t budget for and was not included ion the original scope of work…The bank is not going to disburse additional funds until the work in the original scope of the project is complete. In many cases you have to find a way to fund these repairs out of pocket, which can prove difficult for soem and impossible for others
One of the points I try and stress is don’t cut too many corners when tackling a renovation project. It is in cutting the corners that the problems usually arise. I would hate to see someone do a great job renovating a house only to run out of money before you install the stairs to the front door!