Should You Buy A Homely Home?
Of course you want your next home to reflect your style and taste, but sometimes the best home for you isn’t the best-looking home on the block. There’s a compelling argument for choosing the home that needs a makeover – often called a “fixer-upper” - and then making adjustments to make the home just right.
In today's competitive market, sometimes the modest fixer-upper house can be the most attainable property, and turn out to be a real gem!
Most buyers want a property that is move-in ready, and don’t have the experience or patience to remodel a home. Some are reluctant to hire contractors for fear of getting in over their heads, especially if they’re first-time homebuyers. And then there are buyers who simply can’t visualize the home transformed to their liking.
Buyers will pay a premium for a move-in ready home, while it’s possible to purchase a less-than-perfect home at a considerable discount. It’s also much easier to negotiate on a home that isn’t attracting multiple offers and closed bids, which tends to happen when a home is ready to be lived in right away.
Buyers of fixer-upper properties will also be able to afford to live in a better neighborhood, where they may have the least impressive house, but where the desirability of your neighboring homes will help raise the value of the home they bought. This house may not have granite countertops in the kitchen or hardwood floors throughout, but those are features that can be easily installed.
Best Tips for Fixer-upper Buyers
There are real advantages to buying a home that needs work. Unloved or outdated homes don’t attract as many buyers, allowing you to mine the gold under the dirt. You’re getting the home at a discount compared with the rest of the neighborhood. You’re not paying top dollar for someone else’s improvements and you can make the home your own. You’ll wow your friends and family with the result.
Here's our advice if you're open to going this route:
Shop for the best neighborhood you can afford. Look for the worst home in the best neighborhood. Usually that home is older, smaller and not as well maintained as other homes. You’ll build instant equity when you improve the curb appeal, so the home looks like it belongs with its neighbors.
Ignore the cosmetics. Don’t stress over ugly paint, shag carpet or gingerbread trim. Vanessa has done her own home renovation project and she can help you distinguish features that matter and which are easy to change.
Consider the bones. You need to know whether or not you can open a kitchen to the den or add on a bathroom or other square footage. These updates can be costly but they add value to the home. Talk to your lender about loans that pay for remodeling such as FHA's 203(k) program or Fannie's HomeStyle Renovation Mortgage.
Buyers have access to a wide range of rehab loans in order to help them buy a property that needs work. You can roll the cost of the updates into the total loan amount, and the project will be managed by a professional whose job it is to make sure the work gets completed on time!
The 203k Mortgage
The 203K loan is an FHA loan that allows you to finance both the acquisition and rehabilitation with a single loan. There are two types of 203k loans:
1) 203k Streamline: This is the most popular. The maximum allowable in repairs is $35,000 and does not allow any structural repairs to be done to the home (unless they’re a result of an unforeseen circumstance).
2) Full 203k: Allows for structural repairs and can exceed the $35,000 in home repairs. Both types allow up to $1,500 in swimming pool repairs.
Some important 203k facts:
- Since it's based on the home’s potential value after repairs (not its existing value), you can be approved for a higher loan amount.
- They carry long-term-fixed rates.
- They’re insured as soon as they fund.
- They include escrow accounts for the scheduled repairs.
- Loan amounts are capped according to local FHA limits.
- Only owner-occupied properties of one to four units qualify.
- The home must be at least one year old.