5 Things To Think About If You Are Considering A Fixer Upper

5 Things To Think About If You Are Considering A Fixer Upper

A lot of people, when they go to purchase their first home, think of purchasing "fixer uppers".  They want to get into a home and develop some good equity right away.  Here are some things to think about before you jump into your home search.

1. Modular or Manufactured  

As my previous blog talked about, most modular homes are able to be financed, most manufactured homes are not.  When looking at wanting acreage, but trying to keep your price point down, many people find these properties and want to fix them up.  Keep in mind the resale value and financing challenges they present when considering this option.

2. Loan Type

Many loans, especially first time home buyer loans, have property condition restrictions.  Your lender is going to have an appraisal done on the property and if it doesn't meet the property condition requirements then you won't be able to move forward with your loan...which means you can't purchase the home.  These are in place to protect you.  Some property repairs are extremely expensive and if the home becomes uninhabitable you may have to move out and you might default on your loan.

3. Don't get in over your head

Carpet, paint, some drywall, yard work....these are all things that can be readily fixed.  If you're not a plumber...plumbing can be extremely expensive, same thing with electric.  Structural issues can be EXTREMELY expensive.  Be careful not to get in over your head.

4. Don't Over-Improve

You see people all the time over-improving properties.  If it isn't going to appraise, then your improvements are worthless compared to market value.  For instance, putting marble everywhere in a first time home buyers neighborhood where flooring is usually linoleum and counter tops are usually Formica...isn't a good idea.  An appraiser can only adjust comparables so much and you don't want to lose money on your improvements.  

5. Understand Timing

You most likely shouldn't buy a primary residence and expect to flip it in a year.  For one, some loans have pre-payment penalties.  Secondarily, there are costs associated with selling your home, even if you don't work with an agent (sometimes more if you don't work with an agent and don't know what you're doing).  So the equation is not "what Zillow says my house is worth" less "what I paid for it" equals profit.  In the beginning terms of a loan you don't pay off very much, then you have what you put into a home, market value (even Zillow admits it's off by about 9% in this area), carry time, seller paid closing costs, title insurance etc.  You should plan on living in a home no less than 3 years and closer to 5 years (minimum) if you want to make sure that you'll get good equity out of the home.  Even then waiting until the market is favorable to sell if you don't have a pressing need.  

So, understand the home type, know your loan type, don't get in over your head, don't over-improve and commit to at least 3 years in your home and fixer-uppers can be a great deal and generate equity for you in the long run.  Make sure you work closely with your lender and your agent to understand the market and your loan BEFORE you go shopping.  






 


Sarah Rowan Headshot
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Phone: 970-397-5774
Dated: June 16th 2014
Views: 242
About Sarah: Sarah was a licensed real estate agent for 10 years before transitioning into the mortgage industry ...

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