Buying A Fixer Upper
The popularity of renovating fixer-upper houses has increased due to TV shows that show how easy it is to do. However, not everyone can afford major renovations.
A fixer-upper is the purchase of a less desirable house on the block and the supervision of its transformation. You can buy a fixer-upper as an investment or fix up your home.
What Is A Fixer-Upper Home?
A fixer-upper home is one that has not been damaged in a significant way that makes it uninhabitable.
These fixer-uppers tend to be sold at a lower cost than homes in better conditions. This makes them attractive to investors who are looking to turn a profit or buyers looking to increase their purchasing power.
Do I Need A Fixer-Upper?
People often buy fixer-uppers because the price of the home and renovation costs are less than what they would pay for a similar home in good shape.
These Are The Top Reasons Why Buyers Choose To Buy A Fixer-Upper:
Price Reduction
You may find it cheaper to buy a fixer-upper in a desirable location than to purchase a home that has been renovated.
You Can Make Custom Improvements
A fixer-upper can be furnished with any type of fixtures or finishes you want, provided that your budget allows. A fixer-upper is a great option for those with specific tastes and who wish to have more control over the interior design of their home. In addition, a fixer-upper allows you to avoid having to pay for renovations that were done by someone else, even if they are not your style.
Charming Older Homes
It is difficult to recreate the character of older homes. However, you can buy an older home that needs some TLC and restore its original character while also bringing it up to modern safety, efficiency, and comfort standards.
Profit
You may make a great profit on renovations, whether you plan to flip the house or stay there for a while before selling it. The quality of your work and the type of renovations that you do will determine the return on investment. To maximize your property's value and appeal to many buyers, choose your area's most popular home improvement options.
Tax Incentives
Buyers who buy a fixer-upper in some metro areas such as Philadelphia or Cincinnati and then renovate the property to increase its value might be eligible for a credit or tax abatement.
How To Find Fixer-Upper Homes
It all comes down to where you look when looking for the perfect fixer-upper. Here are some strategies to help you find the perfect home.
Search online:
You can use keywords like "fixer-upper," "needs to work," or "TLC" to narrow down your search results.
Get in touch with an agent:
Your local agent will be able to help you locate fixer-uppers in your desired neighborhoods. In addition, through word-of-mouth, agents with good connections may be able to show you homes that aren't yet on the market.
Short sales, foreclosures, and search auctions:
These distressed properties may be in excellent structural condition but are sold below their market value to quickly get them off the market. These homes are sold as-is, and disclosures may not be available. Make sure you have enough money to cover unexpected issues.
How To Find A Fixer-Upper House
Prioritize the things you cannot change about a house (such as its location) and those that are too expensive to fix (such as major structural changes). These are some key considerations:
Localization
Because it cannot be changed, location is the most important thing you should look for. To maximize potential resale price, look for a fixer-upper located in a desirable area. You will be happy in your home if you choose the right place. You should also pay attention to other factors such as school ratings, proximity to parks, restaurants, and commute times.
Your home's location is also important in determining your renovation budget. It will also impact the value of the property after it has been renovated. If you want to recoup your costs, the quality of finishes and upgrades that you choose should match comparable homes in the neighborhood.
Layout And Size
A fixer-upper can allow you to make changes to the house as you wish. However, it is important to pay close attention to any layout or design ideas that might require you to remove load-bearing walls. This can be costly and sometimes impossible. In addition, home additions that increase square footage can be costly and may not be permitted depending on the local laws and zoning regulations.
Condition Of Your Home
There is a big difference between a fixer-upper and a home that has significant structural problems. It is more costly to repair structural and mechanical problems than cosmetic ones. To gain an in-depth understanding of the home's strengths and weaknesses, hire a professional home inspector. This is a valuable step even if you are buying a house as-is. This is what you should include on your home inspection checklist if you're a fixer-upper.
Solid foundation
Up-to-code electrical
Proper plumbing
Solid roof condition (should be included with roof certification).
Central AC and/or HVAC
Functional windows
Simple Cosmetic Updates
Homes with worn-out or outdated finishes are preferred. These homes will not appeal to the general population but can be easily and inexpensively updated. The home you purchase will need only cosmetic updates. You should look for homes that offer:
Peeling or fading of exterior and interior paints
Tile and fixtures for older bathrooms
Kitchen cabinets from the past
Countertops made of laminate or tile
Stain carpeting
Hardwood floors that need to be refinished
You should get rid of any trash or belongings that are left behind.
Neglected landscaping
Appliances that are no longer in use or obsolete
How To Buy A Fixer-Upper
A home that is in dire need of work can be a risky purchase. You won't be able to assess the condition of the house until you begin tearing down walls. Therefore, it is important to do your research on the neighborhood and property before you buy.
A Professional Home Inspection Is Recommended
Make sure you include an inspection clause in your offer for a house. If the inspection shows that there are serious defects, you can cancel the deal and get your earnest cash deposit back.
Even homes that are marketed as "as-is" can be inspected. The only difference is that the seller may not want to repair your findings.
Inspection costs between $250 and $700, depending on the size and location of the property. You can also choose to have specialized inspections done for trouble areas. For example, pests, sewer lines, and radon are all common specialty inspections. Specialty inspections cost about the same as general inspections.
A structural inspection not only examines the structural integrity of the property but also identifies any natural hazards that may affect the home's resale or safety. Therefore, before you make an offer, it is worth hiring a structural engineer. This will run you between $500 and $700, but it could save you thousands in foundation repairs.
Employ An Architect And General Contractor
An architect can design a new layout, make blueprints and give you advice on what's possible. To obtain a home permit, some cities require that you submit plans. Therefore, being an architect is a must. Depending on the scope of your project, an architect will cost you around $5,000.
Although your home inspector will give you an estimate of the cost of repairing any problems that may arise during inspections, they are not qualified to provide a precise quote. For any issues that may arise, be sure to add 10% to your quote. Get quotes from several contractors. Do your research on their licensing and customer reviews.
Budget For Improvements
Be sure to discuss all costs with your contractor when creating your budget. Include:
Permit fees:
If applicable.
Materials costs:
Such as flooring, paints, light fixtures and cabinetry, countertops, and hardware
Labor costs:
Include inspectors, plumbers, electricians, and general contractors
Living costs during renovations:
If the house is uninhabitable during construction
Know Your Limits
You need to assess your ability to take on a large renovation project. This is especially important if you are looking to cut costs by doing the work yourself. It's not as simple as it looks on TV. If you are doing it for the first time, there is a chance that things will go wrong. A large-scale project can be stressful, even if everything goes well. While you will be required to live in the construction zone or relocate temporarily, you will still have to pay all the costs associated with the home.
Fixer-Upper Loans As Financing Options
A fixer-upper can be purchased with a conventional loan and then paid for the renovations outright. You can also get a fixer-upper mortgage to finance the house and renovations. There are two types of home loans that fixer-uppers can get:
FHA 203(K), Standard
A standard FHA 203(k), FHA 203(k), a loan is available to finance the purchase or renovation of a primary residence. These are the main requirements:
Minimum credit score 500, with a 10% down payment. A credit score of at least 580, with a 3.5% down payment.
The loan's total cost must not exceed the FHA mortgage limits for your area.
Luxury improvements, such as pools, are not allowed. However, structural work is permitted.
HUD consultants must review and approve architectural plans, supervise contractors' payments and inspect the homes to ensure they meet energy efficiency and structural integrity standards.
There are limitations on when you can sell (not within 90-days).
The lender manages an escrow account that is used to pay the contractor.
FHA 203(K) Streamlined
This financing option is similar to the FHA203(k) Standard, but it is intended for cosmetic projects and simpler renovations. It has a spending limit.
Minimum credit score 500, with a 10% down payment. The credit score of at least 580, with a 3.5% down payment.
Cosmetic upgrades below $35,000
There are limitations on when you can sell (not within 90-days).
The lender manages an escrow account that is used to pay the contractor.
HomeStyle Loan
Fannie Mae guarantees a HomeStyle loan as a combination loan for home and home improvements.
A minimum credit score of at least 620 and minimum down payment of 3 to 5% depending on factors such as owner-occupancy, income, and first-time homebuyer status.
Other improvements are allowed but not covered by an FHA203(k), such as landscaping and pools. However, all improvements must be permanently affixed (either to real property or dwelling)
The lender manages an escrow account that is used to pay the contractor.
A certified contractor is required.
CHOICERenovation
A CHOICERenovation Loan is a combination loan for home and home improvement, which Freddie Mac guarantees.
The government can fund renovations up to 75% of a home's worth.
You can use the money to pay for upgrades that help prevent natural disasters.
You can do the work yourself and receive a down payment credit.
Multiple appraisals are required to make sure you are adhering to the terms of your contract and that the renovations agreed upon bringing the home up to its estimated value.
