Purchasing a fixer-upper can do more than satisfy your housing needs. It offers you an opportunity to restore a whole structure to its full market value and even improve the look of your neighborhood. In the process, it can also boost your own net worth.
Fixer-Upper vs. Reconstruction
Often, fixer-uppers are well-constructed homes that have been neglected or experienced unfortunate updates. These homes typically need cosmetic changes that can range from repainting and landscaping to kitchen and bath updates.
In other cases, homes that have structural issues in need of attention generally require a more substantial investment. Repairing a foundation, mold remediation, water damage, new plumbing and electrical, and replacing a furnace or adding air conditioning are higher cost fixes. However, this is also your chance to make sure the job is done right.
Either way, if you’ve found a home in a location you like and that you connect with, it helps to refocus on the investment that will be needed to address any necessary changes. Then, you can make an offer and come up with a plan for how you will finance the fixes.
Look Before You Leap
With a fixer-upper, you’ll want to hire a well-regarded inspector to walk through the home and determine what will need addressing before you make an offer. For instance, this person can tell you if the water stain on the wall is from a loose gutter or if the roof needs to be replaced, which are repairs that reside in two very different price brackets.
Having an inspection report and estimates for the work you expect to have done can also help when you start negotiating with the current owner. It can both substantiate your offer and potentially alert the owner to issues they may not have been aware of.
Financing Options for a Fixer Upper
Unless you are buying a property for cash or can pay for your planned renovation out of pocket, you will want to choose a Loan Officer who can provide you with options that accommodate both the purchase and the improvements.
Some lenders are able to offer a Federal Housing Administration loan, the FHA 203k Home Improvement Loan, which enables you to receive a mortgage for more than the market value of the home you are purchasing (up to $35,000). By combining the amount of your expected costs with your purchase, the FHA 203K also enables you to limit your closing costs and to start working on the home immediately after closing.
Conventional mortgages are also an option. Often, borrowers will use savings or take out a personal loan to cover their renovation expenses and then refinance (with a cashout) once the renovation is complete and the home appraises at a higher value.
So, What Type Are You?
Restoring a home requires either the willingness to hire and manage contractors or the time and skills necessary to do the work yourself. It also requires the ability to see beyond what a structure looks like today to how it will look after you transform it into your dream home.