Looking for a fixer-upper as a home or simply a passion project? Well, financing a fixer upper is a little different than a regular home.
Considering this, there are some important things to know about each of the types of financing loans. In this article, we will cover the benefits of a fixer upper and the various types of financing.
The Advantages of A Fixer Upper
Do you ever wonder why home buyers avoid housing that is in need of a renovation? Most people believe that it’s not worth it because the cost of purchasing the home and necessary repairs can’t be balanced out. If people were more decisive in purchasing fixer upper homes, they could shave weeks or even months off of their home search. For most people, finding the right property is the hardest part of buying a home, and they’re not making it any easier by avoiding homes that need a renovation. A renovation mortgage of any kind will allow you to consider a home that you can transform from poor to pristine condition. In general, fixer upper homes have structural issues or they just need severe remodeling, but they also let you:- Buy a larger property
- Assure that your family won’t outgrow the property
- Locate in a desirable neighborhood
- Combine modern amenities with the vintage aesthetic of the home
- Improvise and create the home of your dreams
Questions to Ask Yourself
Before we get to the various types of financing opportunities, you should consider if financing a fixer upper is for you. These questions will help you ensure that you are fully ready:- Do I have the financial resources? Ensure that you have enough savings and income to pay back the financing option, in addition to covering the renovation costs
- Do I have time to invest? A fixer upper takes time and effort. You don’t simply finance it and have somebody do everything for you. You have to be flexible with your schedule to meet with agents, contractors, consultants, and more
- Will the renovation go beyond the market value?When financing a fixed upper, people often realize that they’re spending more than they thought they would. This is one of the reasons people don’t finance homes that need renovations. A proper appraisal should help
- Do I have to contract the work? If you don’t have construction skills or the financing loan requires a contractor on-premise, you will need to hire somebody who is licensed
Financing Options
FHA Standard 203(k) Rehabilitation Mortgage
This is a type of loan program for renovations. It’s well-known among first-time buyers who are interested in buying worn down properties. This type of loan will often include financing for both the initial purchase and the required repairs, allowing you to make necessary changes immediately after closing on the transaction. The primary benefit of this program is the flexibility of choice. You can make both major and minor repairs, as well as full-fledged remodeling. Nonetheless, it’s important to consider that the loan itself is only available to people who are financing at least $5,000 in renovation value. Some of the other requirements are:- No larger than a two-unit primary residence
- Work must be complete within 6 months
- Renovation work must begin within a month of the agreed date
- Funds cannot be used for luxury objects
- A general contract with license must do the work
- Appraisal report has to cover “as-completed” value