The residential real estate market is hot, which can be good news for sellers but harder for some aspiring buyers, due to limited inventory in a lot of markets. A move-in ready home can be hard to find, especially if you’re on a budget. So, what’s an anxious home shopper to do?
Enter the fixer upper. Fixer-uppers — units in need of updates or repairs — usually sell for less per square foot than homes that are in prime condition. But there’s more to consider than just the price tag. Reality shows may make the process and end product look glamorous but buying a property that could use some TLC warrants a dose of caution. Here’s what you need to know:
First, if you’re considering going the DIY route, expect a considerable investment in terms of the repairs. It’s prudent to look into your financing options so you can have a plan in place for how to best tackle this adventure. Most people don’t have enough cash lying around to buy up a house, even if heavily discounted.
Don’t get discouraged, though. A renovation loan is specifically designed for this type of purchase. These are mortgages that let you finance a house and the necessary improvements at the same time. With such funding, you can pay off improvements over a longer period of time and at a lower interest rate than with alternative loan products. Plus, such an arrangement may help cover your mortgage payments if you have to live somewhere temporarily while the home is out of commission.
It should be mentioned that if you opt for a traditional mortgage, you’ll have to look to cash, a credit card or a personal line of credit to cover the expenses related to the repairs. These options might make you feel over-extended and make the home an impractical investment. After all, you can’t put on a price on financial security.
But before you get ahead of yourself, be sure to hire a professional contractor to estimate the cost of the work up front, so there are no surprises. The ideal home for you is one that aligns with your skills, schedule and the way you plan to finance the improvements. If you try to force it, it might not be right for you in the end. Timing is of the upmost importance!
If, however, you determine the house is a go, take care to have realistic expectations about the timeline. Don’t be surprised if there are roadblocks along the way. It always takes longer than you might think, because of something unforeseen. Also, be aware that renovation loans often require extra consultations, inspections and home appraisals designed for peace of mind on the part of the lender, and ultimately for your benefit.
In short, a fixer upper can be suitable for certain buyers. You might even be bold enough to take on some of the renovations yourself. (Here’s looking at you, Mr. or Ms. Fix-It!) Regardless, keep in mind that these hurdles can seem like extra headaches at the time, but they help to ensure the work is on schedule, properly and adds to the value.
One of the last steps before your loan is approved and the house keys are placed in your hands is underwriting. Underwriting is the process of risk ...
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