Posted in: Buying a home, First time homebuyer tips, Getting a mortgage

Pros and cons of buying a fixer-upper

Buying a fixer-upper

Key insights:

  • A fixer-upper may require attention, but it also gives you more control over a home’s style and function.
  • If you have a tight budget, you may want to consider a renovation loan.
  • Be sure to budget responsibly when buying a fixer-upper; repairs can cost more than they show on TV shows.

The housing market is currently facing low inventory and a shortage of lower-priced “starter homes”. And, while a turnkey home is preferable for some owners, it may be the optimal time to consider homes that aren’t in perfect shape instead. Here are the pros and cons buyers can consider as they look at purchasing a fixer-upper.

Comparing the price of a fixer-upper

Pro: Fixer-upper homes tend to be priced lower than homes that are updated and move-in ready. This means that you may save money at closing if you purchase a fixer-upper. Additionally, a home in need of repair may not generate as much buyer interest, which means that you may be less likely to see intense buyer competition if you choose one of these homes.

Con: Although a fixer-upper home may save you money at closing, you may end up putting the money you saved back into the home through renovations and other improvements. Despite saving money up front, you could end up spending the same amount (or even a bit more) in the long run.

Customizing the house to your needs

Pro: When you’re fixing up the space, you can make the home entirely yours. Although fully renovated houses are great upon move-in, over time you may wish the space were different. With a fixer-upper, you can ensure that the kitchen layout matches your lifestyle or that the main floor has a small bathroom and laundry room instead of an oversized mudroom.

In short, you’ll have more control of the home design and can make decisions that benefit your lifestyle and needs.

Con: Remember that some features that seem fabulous to you may not be at the top of the next buyer’s list. If you’re not going to be in your house for a long time, or you plan to flip it, be sure to consider your desires and the home renovation projects with the best ROI.

Using a renovation loan for a fixer-upper

Pro: If you choose to purchase a fixer-upper, you may be able to take advantage of renovation loans. A renovation loan bundles up your home mortgage loan and the cost of any needed repairs — meaning that you won’t have to pay for repairs out of pocket.

Con: When approving a renovation loan, lenders require the borrower to lay out a very specific project plan with set deadlines for selecting a contractor and completing the work. The process of getting approved for a renovation loan — while working to secure a contractor who agrees to the work — can be stressful. Be sure to consider the potential stress and stipulations that can come with renovation loans, and to be committed to a fast renovation plan if you go this route.

Making the most of a small budget

Pro: When purchasing a fixer-upper, you might be able to make more of a small budget. Some buyers find that by purchasing a house with “good bones” they’re able to put their money into the renovations they desire most. With thoughtful consideration and planning, you can stretch your budget to get meaningful results.

Con: If you’re funding house updates with a renovation loan, know that your lender may limit your renovations to take up a certain percent of your total loan limit. That means that the type of renovations you see on reality TV shows — where the buyer pays $100,000 for the house and then puts in $200,000 worth of updates — may not be possible for you.

And in general, remember not to gauge your renovation costs off what you see on HGTV or home fix-up blogs. Many of these folks benefit from partnerships to get discounted materials, low-cost (or free) contractor labor and other items that aren’t factored into the budget you see on the screen.

Final considerations for fixer-uppers

You must consider your personal preferences when determining whether a fixer-upper is right for you. A turnkey property can be extremely convenient, and can require fewer immediate repairs or issues post-closing. However, a fixer-upper home may better fit within your budget and give you the chance to customize your space.

If you’re ready to search for homes in your area, reach out to Edina Realty or your REALTOR® today. Our team has years of experience to help you find the home of your dreams — whether it’s a fixer-upper house or an already pristine property.

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