Buying a home can be hard, but it can become especially difficult if you are on a tight budget. If you have a tight budget, it may be time to consider purchasing a fixer-upper on your budget’s lower end. But you need to acquaint yourself with fixer-uppers before taking one on.
What Is a Fixer-Upper?
A fixer-upper is a house that is typically priced lower than other houses due to the major amount of maintenance it needs. Sometimes you can still live in a fixer-upper before renovations, but it depends on how much work the house needs. To make the home the best it can be for you and your family, you will need to consider your budget, your needs, and preferences.
What to Expect
When you buy a fixer-upper, it is important to be realistic. This means you should prepare for the worst and be surprised by the best. Understand that more work will be required than with a move-in-ready home. You may even find more issues with a home after you have purchased it. Finally, expect that your life will be disrupted; even if you have decided not to live in the fixer-upper, doing renovations will still be a disruption to your day-to-day life. If you decide to live in the fixer-upper you are currently renovating, think wisely about if you could live without a full-functioning bathroom or kitchen. If you decide the renovation is too disruptive for you and your family’s life, you can spread out the renovations over time to minimize the disruptions.
Get a Home Inspection
It is essential to get a home inspection done by a professional to understand what renovations need to be done and how much they will cost. If possible, you should get the inspection done before you purchase your fixer-upper to decide if buying a fixer-upper is worth it or if you would lose money with the number of renovations you would have to do.
Create a Budget
After you get your inspection done, you need to create a budget for your fixer-upper. By creating a budget, you will know what you have to spend. Therefore, you hopefully will not go over your budget. But remember, you should always be prepared for the worst, so expect that something might come up that may cost you more money during the renovation process.
Finding the Right Loans
Renovating a fixer-upper can be pricey, and sometimes you need to get some extra cash to get the job done. This means you will have to take out a loan, but most lenders aren’t going to finance a fixer-upper with a traditional mortgage. So, you need to find the best loan for your fixer-upper. Certain loans allow you to include your renovation costs in your loan amount with a single mortgage.
FHA 203 (k)
The Federal Housing Administration Section 203(k) loan allows a home buyer to purchase a home and renovate it with one mortgage. But this loan can also be helpful for homeowners. Homeowners can use this loan to refinance their existing loan, adding the cost of renovation projects to the new loan.
Fannie Mae HomeStyle Loan
Fannie Mae’s HomeStyle Loan is a conventional mortgage that lets borrowers buy a home that needs renovations or refinance their existing home loan to help pay for renovations. But a certified contractor must submit a cost estimate with a detailed scope of the work. The money for renovation projects goes into a separate escrow account to pay contractors directly.
Freddie Mac CHOICERenovation Mortgage
Freddie Mac’s CHOICERenovation is another conventional mortgage option that allows home buyers to roll renovation costs into a single mortgage. This can also be used to repair a home damaged by a natural disaster.
VA Renovation Loan
The U.S. Department of Veteran Affairs guarantees military borrowers and spouses’ loans. This loan can be used to purchase a home needing repairs, combining those costs into one loan amount. But borrowers must use a VA-approved contractor.
What Renovations Are Worth It?
When creating a budget for a fixer-upper, it is essential to know what renovations are worth the money and what renovations are not worth it. The renovations worth the money are repairing or replacing plumbing and any electrical work, along with the roof, gutters, and downspout. These renovations will help ensure that you and your family are safe in your new home. Renovations that aren’t worth the money and can be addressed later on are any cosmetic details, such as changing the paint color or countertops. If everything is fully functioning and safe, you and your family can wait before making some renovations.
What to Watch Out For
Buying a fixer-upper may seem like a money pit, but there are certain things you can look for to avoid spending too much money on renovations. Once you get your inspection done, you should avoid purchasing the home if there’s:
- Structural Damage
- Foundation Problems
- Old Plumbing
- Outdated Electrical
Renovating all these things can become costly and affect you and your family’s overall safety in your new home.
Be Familiar with Permits
To do some renovations, you may have to get some permits. Usually, the location of your home will dictate what kind of permits you will need for your renovations. But typically, the permits you would need while renovating a fixer-upper are:
- Structural Work
- Room Additions
- Plumbing and Electrical Work
- Window Installations
Determine if the Investment Is Worth It
Buying a fixer-upper for you and your family could be a good investment, but it could be a money pit if you budget incorrectly or fail to get a home inspection. To determine if buying and investing in a fixer-upper is best for you and your family, you should look at comps in the area, then add the estimated cost of how much all the renovations will cost. Once you have completed the calculations and have determined you won’t lose money, then it’s likely purchasing a fixer-upper will be a good investment.
Deciding whether to buy a fixer-upper can be an overwhelming decision. But if you do the proper research and create an accurate budget, then buying a fixer-upper could be the best decision for you and your family to save money and build the home of your dreams!
Hi! I’m Helen Wells, the Content Writer Intern here at Homes.com. In my spare time, you can find me either reading a novel, watching the latest TV drama, or hanging out with my friends. Follow me on Twitter at @hawells21.