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Buying a Fixer Upper – What You Need to Know

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Buying a Fixer-Upper - What You Need to Know

Is it time for you to look into buying a home? Whether you’re looking to save money on a place to live or you want to fix up a rental, buying a fixer-upper is a great way to keep costs down and get the feeling of a job well done.

But do you have what it takes to buy a fixer-upper and take care of it, so it’s livable and in good shape? We want to help you make an informed decision so that you can buy and renovate the home of your dreams.

Whether you and your family are first, third, or tenth-time home buyers, we have the advice for you. Keep reading to learn more.

Should I Buy a Fixer-Upper for My First Home?

Not everyone is suited for a fixer-upper. When you’re looking into buying one for your first home (or even after your first home), you need to consider all of the work that’s going to go into it and whether or not you’re able to handle that work.

People tend to go for fixer-uppers because they know that they’re less expensive. For first-time home buyers, this is a huge appeal. Many younger people can’t afford to buy a house that’s in perfect condition, but they know that a house is a good investment.

You need to consider the extra costs associated with buying a fixer-upper if you’re thinking about taking that leap.

We’ll talk more about those costs and determine if they’re worthwhile later on in the article, but in short, expect to spend more than the home’s face value. You need to combine the cost of purchase and renovation.

If you’re someone who likes to put some elbow grease into a home or doesn’t mind a home that isn’t in perfect condition, a fixer-upper is actually a great choice.

Many younger people enjoy the renovation process. When you can renovate an old home, you get to make it your own.

On the other hand, if you want a home that’s move-in ready with no extra spending or effort on your part, a fixer-upper might not be right for you.

How Much Should You Spend on a Fixer-Upper?

Let’s talk about costs. When you’re buying a fixer-upper home, you can expect to spend less than you would for a home in good condition, with all other factors being equal.

This means that a fixer-upper home in a good neighborhood with 5 large bedrooms and a big yard should cost less than a 5-bedroom home in a good neighborhood that’s ready to move into. Never pay more.

That said, the extent of the required fixes matters here.

What kind of damage do you need to fix? Some fixer-uppers are just old. They may need some plumbing adjustments or new floors. The interior might be dated. The lawn might be in disarray. They’re not that expensive to fix.

Other homes are more dilapidated. If there’s significant water or fire damage or holes in the floors and ceilings, you have more expenses in your future.

In other words, take this case-by-case. Compare the home against other similar homes in your area and estimate how much it would cost to fix it. Make sure that the cost of renovations doesn’t push the cost of the home past your budget.

So Is It Worth It to Buy a Fixer-Upper House?

Again, this depends. If you calculate your costs right and you’ve determined that the home and all of its repairs can fit into your budget, it’s absolutely worth it to buy a fixer-upper home. It’s fun and fulfilling to watch your home come together.

If you’ve realized that the costs are fine but that the time commitment is higher than you’re ready to commit to, it might not be worth it to you. Get a home inspection before you close on the house (if you’re able; most homes up for auction don’t have this option) to help you figure out your options.

If you want a home that’s unique to you and you love putting in the time and effort to make it that way, you won’t have any regrets about buying the right fixer-upper. It’s not the same as a move-in ready home, but it’s still a great way to fast-track your homeownership.

Can You Get a Mortgage for a Fixer-Upper?

Many people worry that they can’t get a mortgage if they get a fixer-upper home, but this isn’t true. While some lenders may exercise caution when they’re taking on clients with fixer-uppers, the mortgages and loans are still available for you to use.

Different loans support different projects, so make sure that you assess your options carefully before you max out your credit cards.

Personal Loan

As with any situation where you need money, you could opt for a personal loan. Personal loans are good for most projects, but they aren’t as secure as other loan types.

You can use a personal loan from a bank, a private agency, an online lender, or a credit union. Use it as you please, but make sure you look into interest rates and any loan regulations before you get started.

Freddie Mac

Freddie Mac renovation mortgages are a great option for people trying to finance their projects. They offer flexible financing options, and you can combine your renovation mortgage payments with other products that Freddie Mac offers.

They also offer mortgages with low down-payments, making them accessible.

Fannie Mae HomeStyle

Fannie Mae offers renovation mortgages that work for everything from basic fixes to luxury renovations. If you’re working with a larger budget and trying to make a dream home, this is a great choice for your home improvement needs.

Even if you’re working with a small budget, they’re also suitable for home rehabilitation.

FHA 203(k) Loan

This kind of loan through the Federal Housing Administration (FHA) is great for renovation projects. It’s more accessible for people with lower incomes and people without high credit scores. Often, people who are buying these homes in the first place have these roadblocks when applying for traditional loans.

You can use this loan for your home renovations and projects.

VA Renovation Loan

The Department of Veteran Affairs offers loans for eligible projects. There are limitations on this, but it’s a good option to look into if you qualify. This may not be as good of an option as some of the others listed, but the benefits may be worthwhile if it suits your needs.

Is It Cheaper to Renovate or Build New?

This depends on the home.

As we mentioned, the costs of renovations vary widely depending on what problems that the home has. Please talk with a real estate agent about what they think when you’re trying to decide on getting a fresh lot, demolishing the dilapidated home, or remodeling.

On average, a full home remodel is going to be more expensive than new construction. This might surprise you. That said, you also have to consider the cost of the lot, any hidden fees, and the time cost that goes into building a new home.

You should also consider resale value if this isn’t your “forever home.” It tends to be higher with new constructions unless you put significant renovations into the fixer-upper.

If you’re considering bills, new homes are also more energy-efficient, meaning you’ll spend less money over time while living in the home.

On the other hand, if the fixer-upper has historical value and great antique features, it may be more worthwhile to fix up the home. Vintage features are very popular amongst buyers.

How Much Does a Full Remodel Cost?

While small-scale remodels or renovations may cost in the low thousands (on the lower end if you’re doing it yourself and purchasing materials, on the higher end if you’re hiring professionals), a full or large-scale remodel will be in the tens of thousands, if not more.

If the entire house needs fixing and there’s damage, you could spend over $100,000 on labor alone.

Is Buying a Fixer-Upper Right for You?

To wrap things up, buying a fixer-upper is a great option for any new or return home buyers looking to save money and create a home that’s uniquely theirs. That said, when you’re trying to decide if a fixer-upper is worth it, you need to consider the extent of damage and required renovations.

Have a long conversation with your real estate agent before you close on a home. They may be able to help you figure out overall costs and decide if they’re going to drive the cost of the home too high for it to be a logical choice.

While you can get loans and do some work on your own, calculating all of the costs ahead of time may save you a lot of money and effort in the end if you discover that a new home is the best choice.

If you’re buying a new home, you’re going to need new insurance. That’s where we come in. Get a quote for homeowner’s insurance today to protect your new investment.

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