203(k) combines mortgage and repair loan

John and Melissa Lattanzio realized last year that they were priced out of the red-hot real estate market in Fishtown, so they began looking for a house in nearby Olde Kensington.

"The options seemed to be a house that would need a lot of updating, or a quickly and generically rehabbed house," said Melissa Lattanzio.

"We had lived in Fishtown for eight years and knew the neighborhood. But the construction and investors were driving up prices. Sellers wanted all cash in many cases."

Then they heard about the Federal Housing Administration loan for first-time home buyers known as a 203(k), which lets buyers pay a lump sum to buy a house and fix it at the same time. Essentially, two loans fall under one mortgage payment.

Which properties qualify? As the Lattanzios discovered, "any property consisting of one to four units and a foundation," she said. "The other catch is that you can't take out a mortgage for more than the house will be worth when it is finished."

They bought at Fourth and Jefferson Streets and paid $270,000: $140,000 for the house, $130,000 for the gut renovation with contractor Paul Janaitis.

The couple had a team: Realtor Neil Spak, Boulevard Mortgage Co., and Chris Early as 203(k) consultant and home inspector. Early completed the regular inspection as well as the final 203(k) renovation inspection. Their architect was Jeremy Avellino, a family friend.

"Make sure your contractor knows what a 203(k) loan entails, since they will have to do some work before they see any money," Melissa Lattanzio said. Contractors receive funds from the lender in installments, based on completed work, and it involves paperwork.

The couple closed on the house in October and had their first child, son Elliott, in December. She began a blog about the renovation, jokingly calling it "Disaster Love House" (http://mjlattanzio.tumblr.com/).

"It was fun and an adventure, and we had a bunch of rehab geniuses," she said. They are pleased with the results, as are dogs Bacon and Beatrix.

For a warm industrial feel, John Lattanzio chose old-fashioned Edison bulbs from Restoration Hardware. They purchased a 10-foot table at a Christmas sale and saved money on appliances by purchasing Nutid, a discontinued Ikea brand.

Family friend Jesse Parsons, of Brass Tacks Woodworking, created custom kitchen cabinets and butcher-block counters. Janaitis built maple stair treads to match the new hardwood flooring.

The Lattanzios splurged on spray foam insulation.

"Within hours, we could feel the difference in temperature," she recalled. "And our gas bills have gone way down, well below what we were paying in our old apartment. It was well-worth the extra money."

Among other cash-saving steps: John Lattanzio found a cement sink in an old barn and shopped for clawfoot tubs at salvage yards and stores such as Provenance. The open-style master bath replaced a small bedroom and now includes a stand-in shower plus a vintage tub.

The couple did all the painting and are still completing upstairs bedrooms for a family visit.

On the third floor, John Lattanzio insisted on exposed beams and LED copper wire string lights from Restoration Hardware. A vintage tub was positioned near their bed so they can bathe the baby at night.

"We went to England for our honeymoon and stayed in an old cabin with a bath next to the bed. That's what gave John the idea," Melissa Lattanzio said. "A lot of marriages don't make it through renovations, but this was a dream house for us."

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