property takes patience, cash
Ever heard of
Madison, Ga? Probably not. It's a tiny town about an hour east of Atlanta,
not really on the way to anywhere. What sets Madison apart is that it was one
of the few towns in the state that the troops of General William Sherman didn't
burn on his "march to the sea" in 1864 in his attempt to crush the spirit
of the Confederacy.
a result, the quaint community has more than 50 homes and structures that predate
the Civil War. The fictional world of Scarlett O'Hara could have been based on
life in homes such as the stately, white-columned mansions that line both sides
of the main street and stand as graceful reminders of the past.
that kind of treasure is a dream come true for many homeowners. But if ever a
venture demanded a clear head -- and a big credit line -- restoring an historic
home is it. Let's just put it this way -- there are good reasons that people build
new houses. We'll take a brief look here at the mortgage, taxes and insurance.
If you're still interested, we've provided a list of online resources covering
everything from finding a house to finding supports for sagging porches.
with an inspection
As you would with any house, the purchase of an
historic home should include a thorough inspection. But if your intent is to preserve
the original quality of the home, and especially if the house is already listed
on the National Register of Historic Places or would be eligible, you might want
to consider hiring a preservation consultant or contractor to handle the inspection.
It will yield valuable information in terms of the amount of work to be done and
the cost, which will play a big part in obtaining a mortgage. If you're thinking
of jumping online to find a bargain-basement loan for this kind of purchase, you're
out of luck.
"This kind of product is very, very
community-centric," says Pete Bonnikson, head of mortgage operations for Internet-based
lender e-Loan. "If someone is doing these kinds of loans, they need to be in the
community so they can almost see the project going on. It's far from a plain vanilla
mortgage. It's not one someone would do over the Internet."
also not a mortgage that comes with a bargain-basement interest rate. Bonnikson
says it's not unusual for three points or more to be tacked on to reflect the
additional risk associated with an older building and the fact that it's a "more
cumbersome loan" for a lender to do.
community has a historic preservation commission, it should be able to recommend
lenders who specialize in these mortgages, as well as restoration consultants
to perform inspections.
If there's a loan that's custom-made for restoration projects,
it's the FHA 203K. It allows the purchase of a home that's unlivable at the time
of purchase but will be renovated. The loan amount can go up to 97 percent of
the value of the home with the improvements. That lets you include the cost of
the restoration in the loan.
the loan include:
- The house must need at
least $5,000 in non-cosmetic repairs. That includes renovations to make the residence
accessible for a disabled resident. There is no maximum limit on the amount of
- It must have been occupied at one time.
house must be a one-family to four-family dwelling.
generally must be finished within six months of closing.
amount that lenders will provide on 203K loans varies by state, and even between
counties, based on housing values. Check with any lender for information on the
If that's the route you decide to take,
Bonnikson recommends shopping for refinancing once the structural repairs are
finished to try to find a loan with better terms.
grants are generally not available to individuals restoring historic homes for
use as a private residence. Neither are tax credits, which may be one reason why
so many beautiful old homes are converted into bed-and-breakfast operations. If
a house produces income, it's eligible for a tax credit of up to 20 percent of
the cost of qualified renovations. It's based on the Secretary of the Interior's
standards for restoring historic properties, and it is quite specific. There's
more information at the National
Park Service site.
Also, it's worth a try
to check with your state or local historic preservation office to see if any grants
are offered for restoration costs.
If you're going to make the investment in restoring a historic
property, you'll want to make sure that the house is properly insured. While the
history of the house is, of course, priceless, it's possible to calculate the
value of the restoration and insure for replacement cost if there's a fire or
other loss. Bruce Jacobson, a partner in the insurance firm of Pearson, Cronin
and Jacobson Inc., in West Warwick, Rhode Island, has first-hand experience in
covering historic properties. He strongly advises owners to do two things: work
with restoration craftsmen who will use the proper materials and processes, and
document both the restoration and the results. And then, insure to the actual
"I have found that if there
is a real bona fide attempt to insure the piece of property to its true replacement
cost, the insurance company will usually not hassle you on a partial loss," he
says. "If you've got a 2,000-square-foot house, you could probably rebuild for
$100 a foot if it's 10 to15 years old, so you'd insure for $200,000. If it's 150
years old, you need to deal with a contractor who's aware of what it takes to
repair it. He'll say you're looking at $250 a square foot. If you do this and
can validate it, they usually won't hassle you. You've made an attempt to give
them premium dollars for value."
In the policy,
look for ordinance coverage. Most standard policies will allow an additional 10
percent to bring a house up to current code. That won't be enough to cover ordinances
dealing with historic properties, Jacobson said. While historical commissions
generally won't interfere with interior renovations that bring a house up to current
living standards, Jacobson notes they can be extremely particular about exteriors.
of the time, historical commissions make you replace with what came out," he says.
"On old Colonials with tiny little windows, you can't just go to Home Depot, buy
windows and stick those in. You'll have to spend $800 to $900 to get a millwright
to replace the window. You won't be replacing a roof with asphalt shingles; they'll
make you use slate that matches what was already there."
also important for you to keep your agent updated as you continue your restoration
efforts -- and document your efforts. You want him to know the value of the house
is increasing, with proof of the materials that were used.
you'll spend additional dollars to make sure the house is insured for its proper
value, you shouldn't be charged extra because of the age.
don't see too many problems with these places," Jacobson said. "Most are rewired,
replumbed and have new heating. It's a labor of love, so the owners constantly
take care of it. Sometimes they can be a difficult claim to settle, but it's not
Thinking of buying and
restoring a historic home? There is a wealth of information for you on the Internet.
Here are a few to get you started:
Preservation Services of the National Park Service offers many helpful features,
including these two unique classes:
the Roof Down … And Skin Deep," a guide to maintaining a historic home and
Web class on the Secretary of the Interior's standards for rehabilitation.
These apply to buildings listed on or eligible for listing on the national register
of historic places.
- OldHouses.Net and OldHouseWeb.Net,
two great resources of restoration tips, real estate listings, and all things
related to owning an old house. Lots of links to forums, discussion groups, preservation
organizations and restoration products and services.
Register of Historic Places
Adventures in Old House Restoration -- Restoration contractor Chris Travis
shares his insights on restoring a historic home, and common misconceptions about
the scope of these labors of love.
- The Advisory
Council on Historic Preservation, an independent federal agency that provides
a forum for influencing federal activities, programs, and policies as they affect
historic resources. Check here for information on Section 106 of the National
Historic Preservation Act, which requires federal agencies to identify and assess
the effects of its actions on historic resources.