Is a fixer upper right for you?
You may be wondering if buying a home that needs renovations is your best choice. Ask yourself these questions before you venture into these kinds of properties to assess whether you’re prepared to renovate:
Do you have the financial resources? Make sure you have enough in your savings or earn enough to pay back your mortgage in addition to any renovation projects you need to make on your home. Being financially stable is extremely important!
Do you have the time to invest? These renovation and DIY projects can take a while, so make sure you have a flexible schedule and enough free time to get things done.
Do you have the necessary construction skills? While not completely necessary, it’s important to know how these projects will get done. Can you do any of it yourself? Do you have any willing friends or family members to lend a hand?
Will you have to contract out work? How much will that cost? If you don’t have any construction skills (if you’re in doubt, you probably don’t) you’ll need to hire people to complete your projects. Estimate how much this will be and see if it fits into your budget.
Will the renovation exceed the home’s market value? You may quickly realize you might be spending more than you bargained for after you start the renovation process.
Does the property make sense for your end goals? Think about where you want your family to be in a couple of years and how you want to plan for your financial future.
Once you figure out whether buying a fixer upper is right for your situation, it’s imperative that you receive the right home loan!
Fixer upper loan options
There are various renovation loan options available for financing your fixer upper project.
FHA 203(k) renovation loans
If you need a little more flexibility with your mortgage, an FHA 203(k) could be suitable for you. These products cover a wide range of renovation projects and are available to those with a credit score of 580 or higher.
Homes more than one year old with repairs exceeding $5,000 may qualify and borrowers are generally required to hire a 203(k) professional to examine the project’s feasibility.
Fannie Mae HomeStyle
For those who need more coverage for their fixer-upper, a Fannie Mae HomeStyle conventional renovation loan could be the way to go. This loan program allows you to borrow upwards of 50 percent of the total for your renovations.
Unlike a regular cash-out refinance<5.4.8 cash-out refinance> or home equity line of credit (HELOC), you can borrow against the projected equity of your primary residence, second home, or single-unit investment property!
To qualify, you must have a credit score of 680 or higher and sound debt-to-income ratios. You may also need to complete your renovations in 12 months or less.
Fixer upper tips
Since it’s extremely unlikely that you’ll be able to do all of the work yourself, do your research. Make sure you gather detailed estimates on all aspects of your renovations, including your plumbing, electric, and carpentry.
With these quotes, enlist the help of a local real estate professional to understand comps. Gather the hard data about similar area homes that have recently sold. This information is a reasonable measure about what the value of your fixer-upper will be upon completion. Lenders are almost certainly going to consider approximate values before giving you a loan.
Final thoughts
Fixer-uppers can be an excellent pathway to owning your dream home. Make sure you conduct some vigorous research and talk to professionals who know what they’re doing!
