Buying a fixer-upper or older home can be exciting—you usually spend less money on the actual purchase, and you’ve got tons of projects to make the home your own.
But, it’s important not to be too dazzled by the price. Generally, older homes require more investment after your initial purchase, so you need to focus on the bigger picture and prepare responsibly.
Older Home vs. Fixer-Upper
An older home is easy to understand—it’s been around for many years and may need some work. Older homes may be historical, so many people like them for their unique features and curb appeal.
A fixer-upper, though, is usually a home that needs a lot of work. It may not pass the appraisal for financing and could need considerable work to get it up to code and/or in livable condition.
Make the Most of Buying an Older Home or Fixer Upper
Preparation is key! These are a few suggestions that could help you make smart decisions before investing.
Get a Home Inspection
With all the uncertainties of an older home or fixer-upper, getting an inspection before putting in any offers is essential for your peace of mind
A home inspector can tell you what’s wrong with the home and what you should fix right away to make the home livable. You may find you don’t want to take on the required work or that there’s more wrong with the home than you realized. An inspection will also help you understand if you’ll qualify for financing. If there’s too much wrong, the house may not pass the appraisal and you’ll either need home renovation financing or to pay more.
Talk to Contractors
Once you know what’s wrong with the home, talk to contractors to get an idea of what repairs might cost. To try and get the most for your money, get quotes from a few contractors. This helps you better understand the scope of the projects, how long they might take, and how to plan for them financially.
Know Area Home Values
Find out what the average home value is in the area. Use that number to compare to the cost of what you’ll pay to buy and fix up the home.
If you find that you’d pay more than the area homes are worth, it may not worth the investment. You’ll be upside down on your investment because you’ll owe more than the home’s value or if you fix and flip the home, you might not make your money back.
Keep renovations within reason so you don’t outpace the area’s home values. Even if you do the work and live in the home yourself, you should try not to invest more in it than it’s worth.
Know the City or County Requirements
Before you make any major renovations, talk to your city or county permit departments. Most cities and counties require permits for major projects including room additions, knocking down walls, or any type of mechanical work. Doing work without a permit could result in fines or undoing the work you’ve done.
Talking to city/county representatives is especially important if you bought a historical home. There may be restrictions on what you can/can’t do—even as specific as the outside paint color of the home.
Assess Any DIY Projects
Not all renovations require the work of a contractor. If you’re handy, you may be able to save money on some of the repairs or renovations. Don’t try to do anything you aren’t qualified to do, but if there are small projects you can tackle and you have the time, you might come out ahead.
Consider a Fixer-Upper Loan
Fixer-upper loans, like an FHA 203K loan, provide the funds to buy and renovate the home. The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area.
You must run the renovation plans through the lender as well as eligibility requirements. Some projects may be required if they’ll make the home livable and help it pass the appraisal. But, if the home passes all city or county codes, you can use the money to make renovations.
Buying a fixer-upper or older home can be exciting, but it’s important to focus on the bigger picture and prepare responsibly. With the right steps, they could be one of the best, and most rewarding, investments.