Things to keep in mind when buying a fixer upper
Thanks to the popularity of TV networks like HGTV and DIY, more potential buyers than ever are interested in purchasing a fixer upper. While remodeling shows can condense the process into a neat, 30-minute segment, the reality of purchasing a home that requires significant work is much different. The following are eight things to keep in mind if you’re interested in buying a fixer upper.
- Location, location, location. Look for the worst house on the best street. Fixing up a home in an otherwise rundown or unpopular neighborhood will add little to the resale value.
- Find a functional layout. While it is possible to move – or entirely remove – walls, the process can get expensive quickly. Find a house with a layout you already like to avoid major construction costs.
- Ensure its structurally sound. Sloping floors, cracked walls, or water spots are all red flags that there are serious structural issues with the house.
- Look for cosmetic changes. A home only in need of cosmetic changes will lead to a much easier renovation. Cosmetic changes include installing new flooring, ripping down wallpaper, or even adding a deck to the back. More serious – and expensive – fixes include new plumbing throughout, foundation repairs, or whole kitchen or bath remodels.
- Include inspection contingencies. Inspection contingencies are standard for most home purchase, but are particularly important when buying a fixer upper. While the sellers will most likely not offer to make any repairs, a good home inspection prior to closing can help you understand exactly what work needs to be done. Still worried? Ask for additional inspections such as a pest inspection, sewer inspection, or engineering report.
- Hire a contractor as soon as possible. While it may seem counterintuitive to hire a contractor before purchasing a home, finding the right builder can make the entire renovation process easier. Find someone who specializes in older homes or whole home renovations and invite them to open houses or to showings if possible for a better understanding of repairs and costs.
- Prepare for overages. No renovation budget is purchase; while conventional wisdom tells us to expect to go at least 10% over budget, many fixer uppers go way beyond that small contingency. If your new home is in need of lots of TLC, budget 15-20% for the contingency fund to make sure you’re covered no matter the emergency.
- Look at home improvement loans. Most lenders will not increase the mortgage amount to cover repairs. Home improvement loans such as FHA 203(k) and Fannie Mae HomeStyle loans can help when purchasing a fixer upper, but expect more red tape; similar to a mortgage, you’ll have to be approved in order to receive the loan. Likewise, plan to submit a bid with the application and prepare to work with an “approved” contractor if necessary.