Buying a Home
Which Comes First … The Mortgage or the Realtor
You’ve been looking at listings for years. You know exactly what type of home you want and all the features of it. This part isn’t
November 15, 2020
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When you’re buying a new home, the various associated costs might seem daunting. And, while a brand new, fully updated home might be your dream, choosing a fixer-upper instead could be a great way to cut your costs. Read on to see if a fixer-upper could be the right choice for you.
Before we dive into more detail, let’s take a look at some general pros and cons of buying a fixer-upper:
Pros:
- You’ll have more opportunities to be creative than if you were to buy a move-in ready home.
- You can make improvements that will increase the value of the home over time, and eventually sell it for more than you paid.
- You could potentially flip the home to earn more money
- Fixer-upper homes typically have a smaller upfront investment cost than move-in ready homes.
- You might pay less in property taxes. Property taxes are, at least in part, calculated based on the sale price of the home.
Cons:
- While your sale price might be lower, the renovations themselves could be more expensive than anticipated.
- Buying a fixer upper can leave you unsure of your bottom line, as it’s hard to estimate exactly how much repairs will cost.
- There’s always going to be some level of risk involved in home repairs – things have a way of going wrong in ways that are difficult to predict.
- If you need to make any structural changes to the home, you’ll have to pay for a building permit (or permits).
- It could take months, or longer, to complete all your DIY projects.
Next, let’s look at some more detailed considerations about buying a fixer-upper:
A Fixer-Upper Could Get You in a Home Sooner
If you’re hoping to buy your new home sooner rather than later, a fixer-upper could be a good choice for you. And, if you’re a first time home buyer, there might be a few roadblocks in your way, such as low credit scores or not enough money saved for a down payment.
Because they might need a lot of work, fixer-uppers tend to get passed over by home buyers who can afford to buy a more move-in ready home. Also, you can still apply for a loan on a home that needs work, and the down payment and credit score requirements tend to be more lax, and therefore more accessible.
Mortgages Matter
When applying for a loan for a fixer-upper, you have some different options than you would when applying for a move-in ready home. These include various types of renovation loans. A renovation loan is a type of loan that allows you to finance your home and your home improvements at the same time. This gives you the benefit of lower interest rates and paying off your improvements over a longer period of time. A few types of renovation loans are:
- FHA 203(k): This type of loan is offered by the Federal Housing Administration to homebuyers with lower income and credit scores than is usually required for mortgages. FHA 203(k) loans can be used for most home improvement projects.
- VA Renovation Loan: The Department of Veterans Affairs has recently opted to include the purchase and renovation of a home in its loan guidelines. However, with this type of loan, your lender may charge a construction fee, not all projects qualify, and a VA-approved contractor is required.
- HomeStyle: HomeStyle loans require a higher credit score than FHA 203(k) loans and are guaranteed by Fannie May. Also, almost any home improvements are eligible, including luxury improvements like a pool or landscaping.
- CHOICERenovation Loan: This type of loan is guaranteed by Freddie Mac, and allows homeowners to make improvements that will help the home withstand natural disasters.
These types of renovation loans can help you cover your mortgage payments if you have to live somewhere else while you’re making your repairs.
Know What You Know, and What You Don’t
Buying a fixer-upper with only minor repairs needed is much different than buying one that’s been completely neglected and needs a lot more work. You should hire a professional contractor to perform a thorough inspection of your potential home before you buy it. This is always a good practice, but especially if you’re going to be making any repairs yourself.
You should also bear in mind that even the most simple-seeming repairs can end up taking longer and being much more complicated than you expect. This is just in the nature of remodeling, and of most do-it-yourself projects. It’s best to go in expecting the unexpected.
Build a Home That’s Uniquely Yours
Buying a fixer-upper is a great way to ensure that your new home embodies your unique personality. You can make modifications that speak to you, rather than feeling stuck with what the last family in the home left behind. Rather than searching far and wide for your dream home, you have the chance to basically build it yourself, which can be the change of a lifetime.
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