So, you found your dream home … but it needs some work to make that dream a reality. With a little bit of planning, work and patience, you think you can turn that fixer upper into something special. Here are five questions to ask before jumping in.
1. Where is it?
As with all real estate, location is paramount. As you consider the upgrades your dream house will need, think about whether those changes might actually overprice the house for the neighborhood. In addition to being in a nice, livable home, you’ll want to recoup your money when you eventually sell.
2. How much work is involved?
Fixer uppers can be a lot of work, so know what you’re getting into first. Scout out the house with a real estate agent and an experienced inspector, who can help identify the home’s issues. Are they cosmetic concerns––ugly shag carpeting, ghastly old wallpaper, outdated appliances—that can be quickly and easily replaced? Or are the issues structural? Be concerned if a home’s foundation, structure and electrical wiring require work, and ask yourself: How much is too much fixing up? Also, consider whether you’ll be able to live in the house during renovation; finding alternative housing could mean added expense.
3. Who will do the work?
Before investing in a fixer upper, decide how much you can do yourself. If the repairs aren’t extensive and you have the skills to make them, you can save money with a little sweat equity. But if you’re considering a major renovation, you’ll likely need to hire a contractor. In that case, do your research before deciding to buy. Once you’ve found someone reliable, with solid references, have them help you estimate the scope of the work—and make sure they’ll be available when you’re ready to start construction.
4. How much should I pay?
When it’s time to crunch numbers, enlist your realtor’s help. Start by comparing prices for homes in good condition in that neighborhood to determine a fair purchase price. Then, estimate the cost of the renovation and deduct that from the fair purchase price to arrive at an offer to buy. And remember, even the best-laid plans can go awry. When estimating the price of renovation, factor in the possibility for cost overruns or timeline delays.
5. How will I pay for it?
Major makeovers will likely need separate financing. A Federal Housing Administration (FHA) 203(k) rehabilitation loan can help. It allows you to buy the home and have a reserve fund in escrow for renovations. A home equity loan (also known as a second mortgage) or home equity line of credit (HELOC) taken at the same time as your primary mortgage may also be an option. Both let you borrow against the equity you already have in your home—for new homeowners, that’s usually the amount of the down payment. A mortgage specialist can help you sort through the options.
Article as published by AAA