When figuring out how to buy a fixer upper, it’s crucial that you have a plan going into it. It can take a considerable amount of time and money to renovate a home, which could extend your timeline and blow up your budget if you’re not careful.
Donovan Reynolds, a licensed real estate agent with Coldwell Banker in Atlanta, suggests budgeting an extra 20 percent into your homebuying budget for a fixer upper, just in case.
If you plan to do many of the repairs and renovations yourself, you still might need to hire a professional at some point. There may be projects that are beyond your skill set, like electrical and plumbing work, so you’ll want to incorporate that into your budget as well.
Expect your life to be disrupted
Do you intend to live in the home while it’s being renovated or do you want something move-in ready? If you work from home or have young children, for example, living in a home that’s under construction for several months might be a deal-breaker. If living through the hum of chainsaws and bangs of hammers isn’t appealing, you can spread out the remodeling projects over time to minimize disruption.
Focus on Location
You can always fix up a home, but you can’t change it’s location. An ideal fixer upper is in a desirable neighborhood that you love. Same goes for future buyers if and when you sell. Seek the help of an experienced real estate agent to help you understand the neighborhood. Look at amenities, such as local schools, shopping, dining, parks and crime statistics. Are the surrounding homes well maintained? Reynolds suggests paying attention to whether the renovations you plan on making will make sense for the area. “Pay attention to the after renovation value (ARV) to you can estimate whether or not these improvements will give you a return on your investment,” he says.
Get the right type of inspection
When you’re ready to put in an offer, it’s a wise move to bring along a trusted home inspector or contractor. These professionals may be able to point out potential flaws or other critical issues that could present problems later on.
It’s important to not let cosmetic flaws deter you from a home you love. Things like paint, fixtures and trim can be easily fixed. Instead focus on the major components of the home so you can anticipate how much you might need to budget and how long it might take to make repairs.
Before closing on a fixer upper, consider a specialized home inspection for a detailed report on the house. In addition to a standard home inspection, consider having a pest inspection, having the sewer lines checked and a thermal imaging test to identify heat loss, air leakage, moisture damage and abnormal electrical components. Check with a reputable home inspector to see if you need more specialized inspections.
Find the right financing
Remodeling a fixer upper can get pricey, so it’s critical you have the right financing lined up. Some home renovation mortgages even allow you to roll remodeling costs into your loan amount with a single mortgage. Here’s an overview of some of those programs:
Fannie Mae’s HomeStyle Loan: a conventional mortgage that allows buyers to either buy a place that needs repairs or refinance their existing home loan to pay for improvements. A certified contractor must prepare and submit a cost estimate and detailed scope of work. The money for the projects goes into a separate escrow account that’s used to pay contractors directly.
Freddie Mac’s CHOICERenovation Mortgage: This is another conventional loan option to roll remodeling costs into a single-close mortgage. The loans can be used to renovate or repair a home that’s been damaged by natural disaster or to prevent further damage from a disaster.
VA Renovation Loan: The U.S. Department of Veterans Affairs guarantees loans for military borrowers and their spouses. Borrowers can use a VA loan to purchase a home in need of repairs and improvements, and combine the costs of those projects into their loan amount. Borrowers must us a VA-approved contractor, and lenders may charge a construction fee.
FHA 203(k) Loan: The Federal Housing Administration Section 203(k) renovation loan helps homebuyers purchase a home – and renovate it – with one mortgage. FHA loans also have lower credit score and down payment requirements than conventional mortgages. Homeowners can also use the FHA 203(k) loan program to refinance their existing loan and add the cost of renovation projects into the new one.
Another option to fund home renovations include taking out a home equity loan or line of credit or a personal loan. An experienced mortgage lender can help you narrow down your choices and the best type of financing for your needs and real estate goals.
There is no such thing as the perfect fixer upper. It’s a matter of a fixer upper that’s perfect for you. Each property is different and the choice depends on your budget, timeline and lifestyle preferences. Be realistic about whether you want to take on a major project or one that requires a few fixes here and there before taking the leap.
Source: Bankrate
