Buying a Fixer-Upper: Things to Keep in Mind
The rise of HGTV has made buying a fixer-upper seem like the best way to get the house you want at an affordable price. Chip and Joanna Gaines make it seem easy. With a little creativity, elbow grease, and resilience you too can turn a fixer-upper into the house of your dreams, right?
What Is a Fixer-Upper?
A fixer-upper can be subjective. What might need an upgrade for one person could be perfect for another family. In most cases we’d consider a fixer-upper to be a house that needs to be remodeled after it’s been purchased. One rule of thumb suggests you spend approximately 20% to 25% less than what a property in good condition in the area would cost . As you begin your search for a fixer-upper be sure to do your research—you might want to look at things like the price per square foot and the number of bedrooms and bathrooms to be sure you’re comparing apples to apples.
As you’re looking for fixer-uppers, it can be smart to review the changes you’ll need to make very closely. You might focus on finds that require mostly cosmetic changes. Larger problems like issues with the foundation, termites, or water damage, could be more trouble than they are worth . If the house will need substantial repairs to the roof, electrical system, or HVAC system, consider the math to make sure you’re getting enough of a discount to account for the cost of those repairs. If you want to obtain financing on a home needing major renovations that involve repairs such as health or safety issues, it’s likely you will need to focus on certain loan programs that allow for major repairs such as an FHA 203K rehab loan or one from Fannie Mae or Freddie Mac .
How to Buy a Fixer-Upper
Buying a fixer upper is much like buying any other house. You’ll have to account for all the standard homebuying expenses like a down payment, closing costs, and home inspections. But, when it comes to buying a fixer-upper, you’ll likely have to do a little more planning to determine if the buy is actually worth it. As you’re setting your budget and figuring out how much house you can afford, don’t forget to leave room for the cost of repairs. Renovation loans allow for certain repairs to be made part of the loan amount. Research different options to choose the best course of action.
They say the number one rule in real estate is location, location, location , and the same can be said for buying a fixer-upper house. Fixing a house in a neighborhood where all the other houses are in need of upgrades may not lead to good returns on your investment , at least in the short run. But, fixing a house in a desirable neighborhood could end up being a better value. Your real estate agent can be a helpful resource as you try to determine the value of a home’s location.
As you look at houses, also pay attention to structural elements. You can easily refinish cosmetic items such as the hardwood floors and upgrade the kitchen cabinets, but structural issues are much harder to address. Look closely at the inspection(s) to gauge the condition of the roof, plumbing, electrical, foundation, heating, ventilation, and air conditioning (HVAC). These are some of the most important elements of a house. If the house needs substantial repairs to the roof, electrical system, or HVAC system, it’s a good idea to do the math and make sure you’re getting enough of a discount to account for the cost of those repairs. It may be worth bringing in a contractor to provide estimates on the cost of repairs so that you know what you are up against before signing on the dotted line.
You may also need to have specific inspections completed before you commit to buying the house. A general home inspection should pick up issues that may need a more in-depth look, so you may want to consider also hiring specialized experts to perform a more in depth inspection of any trouble areas identified such as a structural engineering evaluation, sewer line inspection, pest inspection, roof certification, etc. Consult with your realtor and general home inspector on any additional reports that may be needed.
These tips could help you close on the fixer-upper of your dreams. If you’re still debating “Should I buy a fixer-upper?” read on for some pros and cons worth considering.
Pros of Buying a Fixer-Upper House
There are a few benefits to buying a fixer upper. Here are some to consider:
Could Help You Save Money
This may seem obvious, but one of the biggest reasons to buy a fixer-upper is to save money. Overall, you’ll likely be spending less money on the base price of the house. In an ideal world, even after you factor in the cost of repairs and upgrades, you still have spent the same or less than you would have on a comparable home.
Buy a Home in an Otherwise Unaffordable Neighborhood
Since you’re buying a home that needs a few updates, you may be able to buy a house in a neighborhood you may otherwise be unable to afford.
More Creative Leeway
As you start repairs on your fixer-upper you’ll have creative license to make the changes in exactly the way you want. If you buy a brand new or renovated home at a higher price, you may not have enough money left over in your budget for custom renovations.
Cons of Buying a Fixer-Upper House
Here are some of the negatives to consider before you decide to buy a fixer-upper.
Depending upon the repairs needed, you may need to obtain special renovation financing. This type of financing involves renovation bids, completion inspections, and other additional steps vs a traditional home loan.
Renovations can take time. Depending on the types of repairs you’re doing, you may not be able to live in the house while repairs are being made. If that’s the case, be sure to budget for the cost of staying at a hotel or other lodging as construction takes place. Some renovation loans such as FHA 203K allow for up to six months of housing expenses to be financed during renovations.
Renovations Require Expertise and Could Be Expensive
Renovations and construction require expertise. Unless you have experience in those areas, or are an experienced house flipper, you’ll most likely need to bring in experts to help you. Depending on how many projects you plan on completing, the cost of renovating your fixer-upper can add up quickly.
May Uncover Deeper Issues
In a worst case scenario, you may uncover deeper issues with the house after you’ve already started repairs. This can mean additional construction, repairs, and even potentially hiring more contractors or specialists to deal with the issue at hand. The costs could escalate quickly.
Ready to Buy Your Fixer-Upper?
Now that you’re armed with some valuable tips you can head into the land of fixer-uppers. And hey, if you decide that’s too much work, there are plenty of other housing options out there for you. Regardless of the type of house you choose to buy, you’ll likely need to borrow a mortgage. When the time comes, consider SoFi.
At SoFi, you can secure a mortgage with as little as 10% down on our Jumbo loan programs without having to pay for private mortgage insurance. You can find out what rates you may qualify for easily online in just a few minutes.
Find out more about how a SoFi home loan can help you secure the house of your dreams.
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