- Fixer-upper properties may require attention, but you get to choose how to renovate the home to best suit your style and function.
- If you’re buying a fixer-upper, you may want to consider a renovation loan.
- Pay extra attention to your budget with buying a fixer-upper; repair costs can add up.
As the current housing market continues to face tight inventory and a shortage of lower-priced “starter homes,” buyers might consider purchasing a fixer-upper. A turnkey home is preferable for some owners, but a fixer-upper offers more flexibility and potentially lower up-front costs.
Here are the pros and cons buyers can consider as they search for a fixer-upper home in their desired neighborhood.
Comparing the cost of a fixer-upper
Pro: Fixer-upper homes tend to be priced lower than homes that are updated and move-in ready.
Additionally, a home in need of repair may not generate as much buyer interest. If you choose one of these homes, you may be less likely to experience intense bidding wars and buyer competition.
Con: Although a fixer-upper home may initially save you money at closing, you will end up spending money on home repairs and other improvements after you purchase the property. However, you can determine the pace of those repairs and save up for them over time.
Customizing the home to your needs
Pro: When you’re fixing up the space, you can make it entirely yours. Although fully renovated houses seem great upon move-in, you may wish the space were different over time. With a fixer-upper, you can control the design and make decisions that benefit your needs, such as:
- Ensuring that the remodeled kitchen matches your design and lifestyle preferences.
- Creating a small bathroom and laundry room on the main floor, instead of having an oversized mudroom.
- Turning an extra bedroom into a home office complete with built-in storage solutions and soundproofing.
Con: Remember that some of your favorite add-on features may not be at the top of the next buyer’s list. If you’re not planning on staying in your fixer-upper for a long time, or if you plan to invest in major projects, be sure to weigh both your desires and the home renovation projects with the best ROI.
Using a renovation loan for a fixer-upper
Pro: Renovation loans may be an option for you if you choose to purchase a fixer-upper. A renovation loan bundles your mortgage with the cost of needed repairs. This allows buyers the opportunities to:
- Pay for repairs over time, rather than out of pocket.
- Purchase an as-is or fixer-upper property with more peace of mind.
- Make a clear plan for renovating and budgeting in advance.
Con: When approving a renovation loan, lenders require the borrower to lay out very specific project plans with set deadlines for selecting contractors and completing the work. It can feel stressful to apply for a renovation loan while working to secure a contractor who agrees to the work. If you go this route, you’ll want to be prepared for the stipulations that can come from renovation loans, and be committed to a fast renovation plan.
Making the most of your mortgage budget
Pro: A smaller budget may be able to stretch further when purchasing a fixer-upper home. Some buyers find that by purchasing a house with “good bones,” they’re able to put the money they saved on the listing price into the renovations they desire most. With thoughtful consideration and planning, you can stretch your budget to get meaningful results.
Con: If you’re purchasing a house with good bones and funding future updates with a renovation loan, your lender may limit the amount you can spend on updates. Keep a realistic budget in mind when creating your to-do list of home improvements, and remember:
- Your lender will likely cap your home renovations to take up a certain percent of your total loan limit.
- Home renovations seen 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 realistic and often do not factor in labor costs.
Moving forward with a fixer-upper
Carefully consider your personal preferences before committing to a fixer-upper home. A fixer-upper may better fit within your budget and your desire for a customized space, but you’ll likely have to invest time and money into renovations.
If you’re ready to move forward with a home search in your area, reach out to Edina Realty or your REALTOR® today. Our team has years of experience that will help you find the home of your dreams – whether it’s a fixer-upper house or an already pristine property.