There are several factors that make a fixer upper home appealing to many people. First off, the price is usually lower than other homes in the neighborhood. You may be able to get a larger home in the area you want for less money. Second, a fixer allows you to put your “own stamp” on the home and really make it your style. You get to pick the colors and designs that fit you and your family. And, third, a fixer upper is often an older home. There are beautiful features in older homes that you can’t find anywhere else.
But is a fixer upper for you? Let’s consider some issues with this scenario.
1. Financing. Depending on how much work the home needs you will need a conventional loan or a renovation loan. A conventional loan will go through if the home is sound, but needs a lot of cosmetics and some repairs. If the home is in poor condition, then a renovation loan may be the only financing option. Keep in mind though that only licensed contractors can do the work. Government loans, such as FHA loans, rarely work on fixers. If you are purchasing the home outright with cash, or with a large amount down, you may be able to get a home equity loan for the work.
2. Cost of Renovation. You will need to have enough extra cash to complete your renovations. Work with a licensed contractor to get quotes on repairs. Take measurements to get pricing on flooring, new countertops, etc. (Or hire a general contractor to handle the entire project.) Always budget an extra 20% over what you estimate for the unexpected. Better to have money left over than to run out of money to finish. The costs to renovate a home are often the biggest hurdle buyers face because they are using a chunk of their cash for closing costs on the purchase with little left over.
3. Where will you live? While renovations are going on, will you be able to live in the home? If you are renovating things like the kitchen and bathroom, this can make it very difficult to live there during the work. Many people have to sell their current home in order to purchase their new home, but moving into a fixer is not ideal. To give yourself a month or two of time to work on the home, consider some creative solutions such as using a bridge loan or asking for a rent back from the buyer. Worst case scenario, put your things into storage and rent an Airbnb for a month or two.
4. Hassle. Renovations are always more than you expect – more money, more time, more problems, more hassle. There are always unexpected issues that show up once you start removing old walls, old wires, etc. There can be delays in materials or wrong materials being sent. Obtaining permits and getting inspections can take time. Weather can cause delays. The end result may be worth it, but prepare for a bumpy ride.
Despite the work and challenges involved in a fixer upper, this type of home may be for you. If you’re looking for that historic home on a great lot in the perfect location, being willing to take on a fixer upper may just get you the home you dream of.
By Launch Kits