Buying a Fixer-Upper Home: What to Consider

Learn More About the Pros and Cons

Buying a fixer-upper home means purchasing a property that needs some remodeling work. The home may have cosmetic or structural defects (or both), and you'll need to make repairs and upgrades.

There are pros and cons to buying a fixer-upper, and there is a lot to know about whether purchasing this type of home is right for you. Read on to learn key details on how to buy a fixer-upper house, how to find one, and whether you should move forward with the purchase.

What Is a Fixer-Upper?

Many people who buy a house want a move-in ready home, which is a home that doesn't need any major work. Some buyers, however, prefer fixer upper homes because they are more affordable.

Fixer upper houses are homes that need to be upgraded or repaired. They may have leaking roofs, outdated kitchens, damaged floors, or many other major or minor problems that must be corrected to make them livable and comfortable.

Buying a fixer-upper house may be a good choice if you are handy and want to stretch your budget. Some people also buy fixer-uppers for the purpose of flipping a house. Home flipping is a way to make money by buying and fixing up a home, then selling it for more than the total costs of the purchase and repairs.

Pros and Cons of Buying a Fixer-Upper House

There are some benefits to purchasing a fixer-upper, and there are also some downsides. To avoid regretting your decision, you'll want to consider both the pros and cons of buying a fixer-upper before you move forward.

Benefits of Purchasing a Fixer-Upper

Should I buy a fixer-upper? To answer that question, start by considering the advantages.

• More affordable: A fixer-upper is typically less expensive than a move-in-ready home. Your down payment and monthly costs will be lower because the home is more affordable, which can leave you with more cash to pay for renovations.
• Lower taxes: Since you’re buying a home with a lower value, the property taxes will likely be lower, too. However, your home’s value could be reassessed after you complete renovations.
• More customizable: A fixer-upper puts you in control of how you want your home to look. You choose the tile, flooring, colors, and layout in each room to fit your needs.
• Less competition: In most markets, fewer homebuyers are interested in fixer-uppers. This can help you pay a lower price and give you more ability to negotiate.

Risks of Buying a Fixer-Upper

There are also some big risks and disadvantages to consider before buying a fixer-upper home. Here are some of the potential downsides to think about:

• Cost of renovation: Remodeling can be expensive. Depending on how much work you need to do, you may end up spending more money than you would have for a move-in-ready home.
• Unknown expenses: With an older home, you may uncover issues that your home inspection did not find. These surprise problems could put a strain on your budget.
• Remodeling takes a long time: Fixing up a home can take months—or years—depending on the work that needs to be done. This can mean living in a construction zone or paying for temporary housing.
• Added stress: Renovations can be stressful, whether you are doing the work yourself or paying contractors to do it for you.

How To Find Fixer-Upper Homes

If you've decided that fixer-upper houses still seem like a good purchase even after considering the disadvantages, here are some tips on how to find fixer-upper homes.

• Work with a REALTOR: Real estate agents who know the local market will be aware of fixer-upper properties that are for sale and can help you to find a home that meets your criteria.
• Search online: You can search online listings, including the MLS, or For-Sale-By-Owner websites. You can also get more creative and search county records to find properties where owners may be behind on taxes or look through withdrawn home listings to find homes that were listed but didn't sell.
• Attend auctions: Real estate may be auctioned off after foreclosure or in forced tax sales. You can often find fixer-upper homes by attending and bidding on auctions. Be sure to understand all rules of the auction, for example you may have to buy the property as-is (often without the ability to do a full inspection).
• Advertise: Some investors advertise online or via in-person signs or newspaper ads. These ads usually promise to buy homes in any condition. You could place ads letting sellers whose homes need work know you are interested in purchasing.

When you are looking for fixer-uppers to buy, be sure you are clear on what level of remodeling or repairs you are willing to do. Do you want a home with outdated fixtures and cosmetic issues, but with good bones (solid structure with a great foundation) only? Or are you willing to take on structural issues or deal with big problems like outdated plumbing and electrical wires?

The location and price are also important. For example, it may make more sense to invest in fixing up a home in a nice neighborhood or an up-and-coming one rather than in a neighborhood where demand for homes is low.

And you'll want to make sure you pay a fair price for the property after taking into account likely renovation costs and future market value. Consider getting estimates on repair costs you can’t complete yourself and researching what updated homes in the area sell for to make sure you're getting your money's worth.

How To Buy a Fixer-Upper House

Buying a fixer-upper has some similarities with purchasing a move-in ready home, but you'll need to do a little more due diligence to verify all necessary repairs for the home (so you don't get in over your head). Here are a few steps to take to make sure the transaction is successful.

1. Get the Home Inspected

While a home inspector might not find every problem, a home inspection can help you identify many issues and estimate the cost of repairs. Inspections can also help you prioritize what work needs to be tackled first.

2. Negotiate the Sale Price

You need to consider the renovation costs when you are looking at whether the home is priced right. If possible, you should include an inspection contingency, which means that your offer to buy the property is conditioned on the results of a home inspection.

If the inspection reveals unexpected problems, and especially expensive ones, you can often negotiate the sales price down to account for the added costs of making the fixes.

With a fixer-upper, you often have the upper hand during negotiations. The seller is less likely to have many offers and might be more willing to negotiate.

3. Estimate the Renovation Costs

You should consider the cost of the home as well as the estimated cost of renovations. You wouldn’t want to buy a home then realize you can’t pay for all the work that needs to be done.

4. Decide What You Can Do Yourself

You can save a lot of money if you tackle some of the improvements yourself. However, it’s best to hire a professional (unless you are a skilled tradesman) for structural, electrical, and plumbing work.

5. Find the Right Financing

Financing a fixer-upper home can be complicated because you have to pay for both the home and the renovations.

Sometimes, lenders allow you to borrow for both in one loan, so you'll need to explore your financing options. For example, two possible loans to consider that are specifically geared toward buying fixer-upper houses include:

• FHA 203(k) loans: This FHA loan allows you to get a single loan to pay for the purchase and the renovation of the home. The amount you can borrow is based on the estimated value of the property after the repairs are completed.
• VA renovation loans: VA renovation loans also allow you to get one loan to pay for the home and expected repairs. You must meet standard VA loan eligibility to be qualified, and you must use a VA-registered contractor to get a renovation estimate. The mortgage amount will be based on the home's value after repairs are completed.

Final Thoughts: Should You Buy a Fixer-Upper?

Buying a fixer-upper can be an extremely affordable way to become a homeowner, or it could be a good investment if you are interested in flipping houses. You just need to make sure you're prepared and ready for the costs of the remodeling project.

Working with an experienced mortgage loan officer can help you find the right loan for your fixer-upper or move-in ready home, so whatever you decide, you can move forward with confidence on your home buying journey. Contact Freedom Mortgage today to connect with a mortgage loan professional who can help you find out how much you can save with a fixer-upper home.