Loans for mixed reno: DIY + licensed contractors

[Rachael Joiner]

Hi all –

Looking for some advice on loans and financing.

I am a first-time home buyer in a complicated situation. We have a contract on a home that needs a full renovation. New floor structure, new layout, new HVAC, updated electricity, new roof, new window package, new water heater… pretty much the works. My Dad was a structural engineering graduate from Virginia Tech with experience as a field supervisor for Ryan Homes. He is now a nuclear engineer working for the Navy. He built two houses for my family and recently finished a full renovation for my sister. However, he no longer has an active Class A license and he is related to me – which is causing problems with financing.

Ideally, my Dad will do most of the work on the house. We will sub contract out for electrical, Hvac, plumbing, drywall – pretty much anything not wood related. My Dad will handle the structural problems and new layout. There are also two caveats to this: We really can’t start the full reno until January (closing August 31) and we are trying to get away with a small down payment given that we will be paying rent and mortgage for a year while the renovation is underway.

Trying to consider the full 203k loan. We will purchase the house at $112k and put $150k into it. I have $100k private loan for the renovation that has no strings attached. Our initial plan was to use the 203k loan to cover things done by licensed contractors in the first six months and then use the $100K private loan starting in January to do the rest. However, this really breaks up the renovation into two phases and we would be completing things in Phase I just to redo them in Phase II.

Would a lender provide a 203k loan and allow work to be done through separate financing (private loan) for some of the work? Basically, are there loop holes to the licensed contractor issue? Are there better financing alternatives for what we are trying to do?

We aren’t flipping the house, it will become our permanent residence, but we will refinance to pay back the $100K loan. The house is in a rural area, was built in 1960 and is extremely rundown.

Thoughts? Suggestions?