Buying a fixer-upper can be a convenient pathway to homeownership for first-time buyers or a means for repeat buyers to afford a larger home or a better neighborhood. In today’s market, finding a move-in ready home can be challenging, especially if you’re on a budget.

In fact, a survey conducted by Realtor.com in 2019 revealed that nearly 60% of home shoppers were open to purchasing a house in need of renovations. These fixer-uppers, which are existing single-family homes requiring updates or repairs, typically sell for a lower price per square foot compared to homes in good condition, according to Dan Bawden, president and CEO of Legal Eagle Contractors in Houston, Texas.

However, before embarking on your bargain-hunting journey, it’s crucial to understand the realities of renovations. Contrary to what you might see on TV, seemingly simple projects can quickly become complex once the demolition starts. Additionally, unexpected costs can arise, causing delays in completing your to-do list.

Consider the following factors to determine if buying a fixer-upper aligns with your needs:

Fixer-Uppers Mortgage Options

Renovation loans offer the flexibility to finance your home purchase and improvements simultaneously. These loans generally provide longer repayment periods and lower interest rates compared to other financing options. Consider the following options:

• FHA 203(k) loans: Backed by the Federal Housing Administration, FHA 203(k) loans have more lenient income and credit score requirements than conventional mortgages. They can be used for various improvement projects.
• VA renovation loans: The Department of Veterans Affairs recently updated its guidelines to include the purchase and renovation of a home. However, these loans require a VA-approved contractor, have some limitations on eligible projects, and may involve a construction fee.
• HomeStyle mortgages: Guaranteed by Fannie Mae, HomeStyle mortgages typically require higher credit scores than FHA 203(k) loans. However, they offer extensive eligibility for improvements, including “luxuries” like pools or landscaping.
• CHOICERenovation loans: Guaranteed by Freddie Mac, this mortgage option allows for upgrades that enhance a home’s ability to withstand natural disasters, among other improvements. Borrowers can even make repairs themselves before closing and receive a down payment credit.

In addition to financing your renovations, a fixer-upper mortgage can help cover your mortgage payments if you need to reside elsewhere during the remodeling process. These mortgages may also include extra funds to account for unforeseen project expenses.

By understanding the ins and outs of buying a fixer-upper, you can make an informed decision about whether it’s the right path for you.

Work And Budget

Before purchasing a fixer-upper home, it is advisable to engage a professional contractor who can assess and provide an estimate of the required renovations before making an offer. The choice of the ideal house depends on your skills, schedule, and the financing plan for the improvements.

If you opt for a traditional mortgage, you may need to cover the cost of upgrades using cash, a credit card, or a personal loan. However, these self-funded financing options might impose limitations on your budget, allowing for only one project at a time. Hence, a home in need of simpler repairs may be more suitable for you.

Alternatively, a renovation loan, such as those mentioned earlier, can expand your budget and enable you to tackle multiple larger projects simultaneously. This approach may make it more feasible to purchase a house that requires extensive work. However, it is important to note that fixer-upper mortgages may impose restrictions on the types of renovations allowed and who can carry out the improvements. Additionally, whether you choose to DIY or hire a professional, it is not uncommon to encounter obstacles along the way.

The Need For Added Appraisals And Supervision

Renovation loans often require additional consultations, inspections, and home appraisals to safeguard the lender’s investment and your own. For instance, a standard FHA 203(k) loan necessitates hiring a Department of Housing and Urban Development consultant. This consultant approves your plans, manages contractor payments, and inspects the property after each phase of work is completed. If you opt for the CHOICERenovation loan’s sweat equity provision, you might undergo multiple appraisals. The appraiser confirms that the workmanship and materials align with what’s promised in the contract and that the newly renovated home meets its estimated value. While these extra requirements can be frustrating, they ultimately ensure that the work is completed within the designated timeframe, budget, and adds value to your home.

Satisfaction In Creating A Unique Home

There’s no doubt that buying a fixer-upper is more work than a move-in ready house, but the reward most likely will match the effort. When the dust clears and the paint dries, your home will be full of personal touches rather than the remnants of someone else’s life. A house that’s just how you want it without the premium price tag of new construction? Now that sounds like a dream house.

Contact Sword Mortgage To Learn More About Your Options

Call (770) 757-5750 or complete our online form to speak with a loan expert at Sword Mortgage to get help navigating your options and find a loan that fits your needs today.