what to look for when buying a fixer upper
12 Min Read | Oct 12, 2021
Yous've watched and then many episodes of Fixer Upper y'all can practically guess what new home remodel miracle Bit and Joanna Gaines are about to pull off. And sure, their projects look hard, merely y'all're up for the challenge. Now y'all're thinking of ownership a fixer-upper yourself.
Whether you're a start-time domicile buyer, want to live in a better neighborhood, or merely take a passion for restoring homes, buying a fixer-upper tin can exist a great way to salve money when y'all're business firm hunting.
Only if yous're non careful, a logroller-upper can quickly become a costly pain in the built-in bookshelves. That doesn't hateful buying a fixer-upper is a bad idea—you but need to know what you lot're getting yourself into first. If you want to buy a fixer-upper that's a dream and not a nightmare, here are the top things you need to know.
Is Information technology Worth Buying a Logroller-Upper?
Ownership a fixer-upper comes with pros and cons: You go a lower price tag than motion-in prepare homes in the same neighborhood, but there'southward plenty of piece of work to do (and money to spend) to make information technology experience similar dwelling.
See how much firm you can afford with our gratuitous mortgage calculator!
For instance, let'southward say you find a $150,000 fixer-upper in a $210,000 neighborhood. Past using our mortgage payoff calculator, you tin can get a glimpse of how much more you save by buying a fixer-upper:
| Cost Type | Fixer-Upper Home | Motion-In Ready Home |
| Home price | $150,000 | $210,000 |
| Down payment (20%) | $30,000 | $42,000 |
| Loan amount | $120,000 | $168,000 |
| Mortgage payment (15-twelvemonth term) | $i,010 | $1,380 |
| Total interest (2.v% rate) | $24,000 | $33,600 |
Compared to the move-in ready house, the fixer-upper allows y'all to save $60,000 on the overall price of the abode. Plus, with a less expensive home, yous'll save $12,000 on the down payment compared to the move-in set up habitation and near $10,000 in total interest. With less going toward mortgage payments every month, it'll be easier to cash catamenia renovations to fully restore your habitation.
With a discount like that, it's easy to see why some people get excited nearly fixer-uppers. Just keep in listen, there's a reason information technology's a fixer-upper. And buying a fixer-upper with bad basic or skimping on the renovation program can hands skyrocket your overall costs, eating into the coin you saved by skipping the motion-in ready option. To buy one that's worth it, work with an expert real estate agent who can find you a really adept fixer-upper. Information technology also helps if you're handy with a hammer!
How to Find a Fixer-Upper
Before you go firm hunting, figure out your must-haves (and your spouse's, if you're married)—including renovation projects you're willing (and unwilling) to tackle. Afterwards that, an experienced existent estate agent can aid you narrow downward your best options.
Hither are some of the most important things to consider in guild to find the best fixer-upper:
- Location. Yous tin fix many things about a business firm, simply in that location's zero you lot can practice about a lousy neighborhood or a 20-infinitesimal bulldoze to the nearest grocery store. And then don't compromise on those. Look for a house in an crawly community that fits your lifestyle and that futurity buyers will like too.
- Appreciation. This is but a fancy term for home value growth. Look for a fixer-upper that'll grow in value over time. Research the history of home values and businesses in that surface area. Are home values rising? Is the number of businesses increasing? Those are skilful signs! A hip location that's in high need is definitely going to help boost value.
- Inspection. While a home inspection is important to do before buying any habitation, you definitely want to pay attending to the results on a fixer-upper. An inspection can ostend problems you already program to ready, but it can also reveal layout or foundation bug that prove the business firm to be too big of a project for your upkeep.
Buying a fixer-upper in cash is the best way to become. But if you're getting a mortgage, never buy a home with a monthly house payment that'south more than a fourth of your take-home pay—otherwise y'all'll be business firm poor! Yous particularly want to go along yourself well within that recommended range if you know you're going to be spending additional money fixing upward the dwelling.
That 25% limit includes principal, interest, property taxes, homeowner's insurance and, depending on your situation, private mortgage insurance (PMI) and homeowners association (HOA) fees. Use our mortgage calculator to enter your down payment amount and try out unlike home prices inside your budget.
How to Handle Renovations
While you might picture yourself laughing wildly in cute coveralls while swinging a sledgehammer or slinging paint, renovating a fixer-upper doesn't e'er await similar what y'all see on TV. In real life, yous'll get gear up for work with sawdust on your clothes and pigment in your hair. Merely it could be worth every infinitesimal if you enjoy information technology and beloved the house.
Hither are some tips for planning your fixer-upper renovations:
- Make a budget. To prevent costs from spiraling out of control, you need a domicile renovation budget. Lay out the projects y'all want done and price them before you buy. Get bids and time estimates for each individual project, then rank them according to priority and get-go a detailed budget for the projection you want washed kickoff.
- Make up one's mind whether to DIY or hire a contractor.Once you know what you desire fixed, you tin can either tackle home projects yourself or—if a project is beyond what you're willing to handle—rent a contractor. Exist real virtually what y'all can do yourself or what may demand a professional's impact. If you go the DIY route and and so decide halfway through to bring in a pro, your costs tin can easily explode exterior of your upkeep—so stick to a program!
- Don't outbuild the neighborhood. Exist conscientious not to go switching everything out for marble or adding also many custom features. If you lot get all out and upgrade the house to be the most expensive one in the neighborhood, it'll exist hard to become your coin back when it'due south fourth dimension to sell the business firm.
- Cash period projection by project.If you don't have the coin to go everything done all at once, it'southward okay—but move at the speed of cash. Hold off on starting a project until you lot take the cash to get it finished. That way, you won't exist burdened by debt—and you'll give thanks yourself when the unexpected costs of homeownership come your way.
How Much Does It Price to Set up a Fixer-Upper?
In a nutshell, these days the boilerplate habitation renovation or remodel costs about $47,000.1 Your renovations could ready y'all back $xv–lx per square foot, with some projects costing upwards to $250 per square foot.2 In other words, subsequently buying a two,000 square-foot logroller-upper, you could spend another $28,000–115,000 fixing it up.3
Experts recommend calculation an boosted 20% into your renovation budget for those unplanned setbacks or last-minute changes that cost a trivial actress—aka what nosotros call Murphy (yous know, Irish potato'due south Police) coming for a visit. And when it comes to fixing a fixer-upper, you lot can about bet the whole Irish potato family unit volition want to take upwards residence! So you definitely want to accept a firm budget in mind about how much you're willing to spend before buying a fixer-upper.
You probably won't be surprised to larn that kitchen and bath overhauls are the most popular—and most expensive—abode repairs. They'll gobble upwards your budget faster than you can pick out that new garbage disposal. Every bit a rule of pollex, don't go crazy spending half the cost of your home to renovate a room or 2—that probably won't add together a counterbalanced value to the firm.
Is Buying a Fixer-Upper for a First Home a Good Idea?
The short answer is: probably not. Buying a logroller-upper can definitely save you lot money on your downwardly payment and total interest paid. And sure, a fixer-upper sounds fun and challenging. But for a outset-fourth dimension homeowner, buying a fixer-upper has the very real potential of turning into a nightmare in the flip of a brand-new light switch.
Buying a move-in ready home—and moving itself—is already very stressful. And first-time dwelling buyers don't have the experience even so of what homeownership actually looks like in real life. It'due south not all backyard barbecues and human being caves—it's a backed-upwardly toilet, an overflowing water heater, an HVAC organisation that refuses to play nice at each season's change. And that's in a move-in ready dwelling!
With a fixer-upper, yous could exist looking at large and expensive projects like ripping out cabinets, fierce downwardly walls, installing new pipes—all things that someone with even a little homeownership under their belt will exist better able to handle. Finding a contractor, getting permits, and knowing nearly how much things should cost make for pretty unfamiliar territory for someone who's had a landlord take care of everything up until now.
Unless you're familiar with renovations, yous may desire to save yourself the headache on this first become-round and aim for a movement-in ready home. If y'all're looking for a home-repair challenge, even move-in prepare homes will come with projects you can get your hands on. (New deck, anyone?)
What Kinds of Loans Are Available for Buying a Fixer-Upper?
First, every bit you're shopping for a fixer-upper, you need to know your down payment amount. There are plenty of mortgage options that let y'all become a house with little or no down payment (more than on that bad idea later). Only the smartest downwardly payment is 20% or more than. Your goal should exist to relieve a downwardly payment of at to the lowest degree 10% or more than (although 20% is better because yous can avoid paying private mortgage insurance). Anything less than 10% will drown you lot in extra involvement and fees and keep yous in debt for decades!
If putting 10–twenty% downwardly isn't doable right now, hold off on purchasing a home until y'all tin can go control of your finances—fixer-upper or not. You'll thank yourself later!
Buying a Fixer-Upper With a Mortgage
If you're already debt-free and have a solid 3- to 6-calendar month emergency fund, you're in good shape to go a home mortgage you can pay off fast. In that case, talk to our friends at Churchill Mortgage almost getting a 15-year fixed-rate conventional loan—the overall least expensive mortgage and the merely blazon we recommend.
Beware of Rip-Off Renovation Mortgages
Yous can find renovation loans out there that permit you to purchase a logroller-upper and pay for improvements at the same time. These loans usually let you buy the dwelling with lilliputian or no downward payment—but don't forget, doing that loads you up with huge amounts of involvement and extra fees. You're much better off taking your time on repairs past saving up to pay for them in greenbacks than sinking yourself into a bad mortgage.
To safeguard yourself, here are some rip-off mortgages with renovation options to avert:
- FHA 203(k). The Federal Housing Administration's FHA loan has a 203(g) option that allows you to infringe anywhere from $five,000 to hundreds of thousands of dollars on top of your home purchase loan for renovations.4 The draw hither is that y'all tin buy your fixer-upper and get money for improvements with a downwards payment equally piddling every bit 3.5%. Merely in exchange, you'll be charged PMI for the life of the loan, actress fees for processing architectural documents and a higher appraisement—on top of all the extra interest you lot'll pay and decades you'll spend in debt for not saving up a 10–20% down payment.
- HomeStyle Renovation mortgage. A HomeStyle Renovation mortgage is pretty much Fannie Mae'southward answer to the FHA 203(k)—but allows for an even lower down payment of 3%!five Again, a down payment that depression will beat out your financial goals by racking upwardly your interest payments and keeping you in debt for style too long. Information technology's non worth it.
- CHOICERenovation loan. Of class, Freddie Mac couldn't let FHA and Fannie Mae squealer all the fun, then they came upward with another copycat loan to lump domicile financing and improvements into one mortgage. Again, same problem here: The CHOICERenovation product allows you to go a house with as little as a 3–5% down payment.6 Don't overlook how much extra in involvement that volition toll you in the end.
- VA renovation loan. The U.S. Department of Veterans Affairs' VA loan too comes with a renovation choice that helps veterans get into a fixer-upper and pay for certain types of improvements—with no money down at all! (And y'all know what they say about things that sound too good to exist truthful.) But when you purchase and renovate a home with null money down and things modify in the housing market, you could finish up owing more than the market place value of your home—yikes! Also, VA loans come with a funding fee that'southward ane.4–iii.six% of your total loan amount.7 No thanks.
- Dwelling equity loan or domicile equity line of credit (HELOC) . You might hear about this optionlater y'all purchase a home and have some equity in it (equity is how much the home is worth minus how much debt you owe on information technology). Basically, what you'd be doing here is borrowing confronting your firm to gratuitous up some money for renovations. Don't do information technology! This backtracks all the progress you made in edifice home equity. Imagine how painful it will be to pay back all that you already invested in the house—plus interest!
Bottom line: If you can't afford to make at to the lowest degree a 10–twenty% downwardly payment on your fixer-upper, yous're non in an ideal place to handle all the costs that come with homeownership—especially renovations. Don't permit renovation mortgages lure you downwards a financial hole. Recall, the only mortgage that volition save you the near money is a 15-year fixed-rate conventional loan.
Ready to Find Your Fixer-Upper?
Buying a fixer-upper is no small job. It takes time to discover a home that'south priced right (even for a fixer-upper) and that's in the right condition so you tin give information technology a facelift and stay on budget. So, you need someone yous can trust to assist yous. An good real estate agent who knows the expanse volition be able to assistance you choice the logroller-upper that'southward right for you lot.
For a quick and easy style to find one of the best agents in your area, try our Endorsed Local Providers (ELP) program. Your ELP amanuensis will help you spot great deals with tons of potential.
Find a summit real estate agent near you!
About the author
Ramsey Solutions
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Source: https://www.ramseysolutions.com/real-estate/fixer-upper-home
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