Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Buying a fixer-upper can provide a shortcut to homeownership for first-time home buyers, or a way for repeat buyers to afford a larger home or a better neighborhood. With the relatively low inventory of homes for sale these days, a move-in ready home can be hard to find, especially if you’re on a budget.
That could be why, in 2019, nearly 60% of home shoppers said they were open to a house that needs renovations, according to a survey from Realtor.com.
Fixer-uppers — existing in need of updates or repairs — usually sell for less per square foot than homes that are in good shape, says Dan Bawden, president and CEO of Legal Eagle Contractors in Houston, Texas.
But before you start bargain hunting, you need to know what you're in for — renovations aren't as easy as they may look on TV. Seemingly simple projects can become complicated once the demolition starts, and if costs end up higher than estimated, finishing your to-do list can take longer than anticipated.
Weigh these considerations to help decide if buying a fixer-upper is right for you.
are mortgages that let you finance a house and improvements at the same time. With a renovation loan, you can pay off improvements over a longer period of time and at a lower interest rate than other types of financing. Options include:
A fixer-upper mortgage may also help cover your mortgage payments if you have to live elsewhere while improvements are in progress, and may include extra funds in case projects exceed the estimated cost.
“There’s less-than-perfect shape and then there’s total disrepair,” says Carolyn Morganbesser, senior manager of mortgage originations at Affinity Federal Credit Union in New Jersey. Before buying a fixer-upper home, hire a professional contractor to estimate the cost of all the work that’s needed before you make an offer. The house that’s right for you depends on your skills, schedule and the way you plan to finance the improvements.
If you get a traditional mortgage, you’ll have to pay for upgrades with cash, a credit card or a personal loan. These bootstrapped financing options might put a low ceiling on your budget and limit you to one project at a time, so a home that needs simpler repairs may be right for you.
A renovation loan like those listed above can expand your budget and allow you to tackle larger projects simultaneously, which may make it more reasonable to buy a house that needs a lot of work. But these fixer-upper mortgages may place limits on what kinds of renovations you can undertake and who can complete the improvements.
And whether you DIY or hire a pro, don’t be surprised if there are roadblocks along the way. “It always takes longer than you thought it was going to take because that’s the nature of remodeling,” Bawden says.
If you're looking at , which often need work, brace for delays during the mortgage offer process as well, Morganbesser adds. With , you’ll be negotiating with the lender that owns the property, and it may reject your offer more than once, she says. That makes for a slow start to a project that could take months.
Renovation loans often require extra consultations, inspections and designed to protect the lender’s investment — as well as your own.
A standard , for example, requires you to hire a Department of Housing and Urban Development consultant who’ll approve your plans, manage contractor payments and inspect the property after each phase of work is complete.
Using the CHOICERenovation loan’s provision means you could go through multiple appraisals. The appraiser will confirm that workmanship and materials match what’s promised in the contract and that the newly renovated home lives up to its estimated value.
These additional hurdles can be frustrating, but they help to ensure the work is on time, on budget and adds value to the home.
There’s no doubt that buying a fixer-upper is more work than a move-in ready house, but the reward most likely will match the effort.
When the dust clears and the paint dries, your home will be full of personal touches rather than the remnants of someone else’s life.
A house that’s just how you want it without the premium price tag of new construction? Now that sounds like a dream house.