The trade-off is you have to know what you’re getting into with a house that needs a significant amount of work.
Here's what you should know first.
Is A Fixer-Upper Right for You?
It will also mean a lower down payment requirement. Plus, you’re in charge of customizing your home. You decide colors, how to transform the kitchen, or whether to add a deck, to name a few perks.
The quality of the renovations is up to you as well. You can decide the materials and the contractors. You’re in charge!
The downside is that a fixer-upper is difficult to budget. You always want to run numbers to estimate renovation costs, but it’s really impossible to get an accurate figure.
That’s because, inevitably, you’ll run into unexpected issues especially if the home is an older home. And you must be willing to either live in the home while renovating it or to live elsewhere. This can mean a long-term commitment.
Buying a fixer-upper is a great way to go as along you understand the risks—and the commitment—involved with the purchase.
Here are our 7 essential tips to helping you prepare to buy a fixer-upper.
Buying A Fixer-Upper: 7 Tips You Must Know
Obviously, the last thing you want to do is overpay for a house that needs work. However, neither do you want to insult the seller with a lowball offer.
Make an offer that strikes a middle ground, a balance between knowing the house needs fixing up and a good financial arrangement for both parties.
With any offer, you want to include contingencies. These are exceptions in the contract that allow you to back out of the contract if the contingencies aren’t met. For example, if the home inspection reveals a major problem or the appraisal is lower than your asking offer.
Additionally, work with a real estate agent to handle negotiations and handle any negotiations.
Consider Fixer-Upper Loan Options
You’ll find two great options for fixer-upper loans, the Federal Housing Administration also known as FHA 203(k) rehabilitation loan and Fannie Mae HomeStyle Renovation Mortgage. With both of these loans, you can put money in escrow to fund your renovations.
DIY What You Can
While you may not be able to do the plumbing and electrical work yourself, but you may be able to paint rooms and apply a backsplash on your own. Work items like this help you cut down the cost of getting contractors to do the work.
Determine what you can reasonably do yourself and contract out the rest. This will help your budget tremendously.
A Home Inspection is a Must
Whether you’re buying a fixer-upper or a home in mint condition, getting a home inspection is non-negotiable. A qualified home inspector, trained to perform a thorough investigation, can find problems that you would never think of.
The inspector can uncover plumbing problems, septic tank issues, and whether or not the foundation is sound or cracked.
Get a home inspection for peace of mind and to avoid unpleasant surprises that are not budgeted for!
Renovation Costs Estimate
Make a list of all the projects you want to complete with your fixer upper. This is where a home inspection can further aid you in projecting more accurate renovation costs.
Get quotes from contractors to get a ballpark estimate to guide you during renovations. While you won’t be able to figure an exact cost for everything, you can get a good ballpark idea of what costs to expect.
Do You Need A Permit?
Some renovations may require a permit. It all depends on your home location. But in most cities and towns, you’ll need a permit for the following:
- Window installation
- Room additions
- Structural work
- Plumbing and electrical
- Sheds and garages
Get A Homeowner Title Insurance Policy
With any mortgage loan, the bank will require you to carry title insurance to protect the bank’s investment. However, this does not protect YOUR investment.
Opting to pay a one-time fee for a homeowner title insurance policy protects you from many known and unknown legal issues such as:
- Mistakes in descriptions
- Lost wills
- Illegal trusts
- Undisclosed or missing heirs
You’ve got enough on your plate with renovations. Get piece of mind when buying a fixer-upper and opt to get a homeowner title insurance policy.
When you’re ready to buy or sell a home, turn to the pros at Lilly Title & Settlement Company. We’re a woman-owned business that is locally owned, specializing in title insurance and real estate settlements.