Dream Home or Nightmare? How To Buy A Fixer-Upper First Home
Last updated on August 4th, 2018 at 09:50 am
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Are you considering a fixer-upper for your first home? While you may be thinking it’s an inexpensive way to land a dream home, or even a quick way to pad your bank account, fixer-uppers aren’t for everyone. Here are some things to consider before you take the leap.
How To Buy A Fixer-Upper First Home
Understand the process.
Before you can decide if a fixer-upper is right for your situation, it’s important to understand the homebuying process. First, you need to set aside funds for a down payment. Most lenders require a down payment of 20 percent, although some mortgage loans require less money or no money down.
Another step toward purchasing a home is to check your credit report, and you should do this early in the process. Your lender will review your credit history as part of your loan application, and sometimes repairing bad credit can be a time-consuming proposition. Any incorrect information can be disputed with the reporting party. Unpaid debts and late payments can be more of an undertaking, so allow sufficient time to address issues. You also may need to reduce the amount of your debt to improve your credit score. Depending on your situation, this could also be time-consuming.
Once your credit is in order, you should apply for pre-qualification and then pre-approval for a mortgage. Pre-qualification provides a snapshot of your financial picture and can often be done over the phone. Mortgage loan pre-approval gives more firm numbers for your budget, and tells sellers you are serious. In order to be pre-approved, you will make an appointment with your lender and provide paperwork proving your income, debts and employment history. This is also when the lender will review your credit history. Once you receive pre-approval, you can connect with a real estate agent and begin serious house hunting. Note that conventional mortgages don’t cover renovations, so you need to find other ways to pay for repairs to a fixer-upper.
Consider the cost.
If you opt for a fixer-upper, you have several funding options for making repairs. One is with existing cash, although for most homeowners the down payment and other costs associated with purchasing a home depletes accounts. Some homeowners opt for a personal loan or another form of financing. There is a special loan called the Limited 203(k) Mortgage, which was designed by the government to allow homeowners to renovate and repair properties.
The costs involved with fixer-uppers are one of the biggest drawbacks to purchasing. While a fixer-upper may be an inexpensive way into a desirable neighborhood or a way to land more square footage or another characteristic you crave, the repairs can be cumbersome to your finances, time, and energy. Even if you make repairs yourself, as US News & World Report notes, sometimes the work isn’t cost-effective. You may end up with a property you put more money into than it’s worth, which isn’t too bad if you love it and intend to stay. However, if you plan to “flip” a home you can get into trouble quickly.
Selecting a fixer-upper is another challenge. You should search out fixer-upper properties in your area to be familiar with what’s available, learn neighborhoods, and explore price ranges. For instance, the average listing price for a fixer-upper home in Colorado Springs, Colorado, is $350,000. You should consider areas that are either growing in desirability or maintain value well if you hope to use the property as an investment or if your renovations will take time. Remember markets can fluctuate, so if you intend to purchase a property to sell in a few years, you can end up taking a hit if renovations are extensive and costly.
Think about the repairs.
As The Washington Post reports, completing repairs is another ballgame. Carefully evaluate your personal abilities and skill as well as your finances. Have a home inspection completed before committing to the project so you can compare what the property requires with what you’re ready to invest. Weigh the costs of making repairs with your budget and potential property value. If you can do the work yourself, complete it quickly, and your fixer-upper is in a great location, you could come out a winner whether you opt to remain in the home or sell it to recoup your funds.
You can save money by living in the home while doing work if you plan to do the work yourself and you have the tools and know-how. Tools can be rented or you may decide to buy your own. Depending on the extent of renovations, you will need power tools such as drills, sanders, and jigsaws. If you plan to live in the home right away you may have crucial work immediately, such as a roof replacement, or septic or foundation repair. Some work can require specialized expertise and even licensing, which also means hiring contractors and the possibility of permits. All these factors weigh into your budget and time frame, so be careful in making your assessment.
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First home fixer-upper?
Deciding on a first home is challenging, and taking on a fixer-upper can make it even more so. Depending on your situation, a fixer-upper can either be a terrific investment or a major headache and financial drain. Consider your circumstances carefully to ensure a fixer-upper is a good match for you.
This article is a guest post written by Bret Engle of DIYGuys. You can check out their site, blog, and content at www.diyguys.net