Many home buyers dream about buying a fixer-upper when they first enter the real estate market. Not only will purchasing a fixer-upper house allow them to secure a lower sale price and mortgage payment, but the home renovations will also allow them to increase their home value and personalize the home to their own taste.
That said, making a fixer-upper into your dream house also comes in with its own set of considerations. With that in mind, we’ve created a home buying guide for your consideration below. Take a look so that you can get a better idea of whether buying a fixer-upper is the right choice for you.
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Figure out what you can afford to spend
As a home buyer, it’s important to figure out what you can afford to spend on your dream home, especially if you’re in a hot market and there’s a possibility you may face a bidding war. To start, you need to account for the traditional costs of home buying and selling, such as paying for the real estate agent's commissions or paying for the home inspections.
Then, you’ll need to consider the costs of renovation. In this case, not all renovation projects are created equal. Fixing structural issues, for example, will cost much more than cosmetic projects, such as replacing kitchen cabinets. Plumbing and electrical work will also need to be budgeted, depending on the extent of your home improvement plans.
You’ll also need to think about how you will finance your renovations. Credit cards and personal loans all have unique pros and cons for use in such circumstances. Trying to figure out what it will ultimately cost? Use an online mortgage calculator to determine your potential monthly payments.
Look for the ideal qualities in a fixer-upper
Once you have a budget in mind for your home repair, the next step is to look for your dream house. In this case, if you're a first-time homebuyer you'll want to consider the same factors as you would for a turn-key home. For instance, you’ll want to make sure that you find a home that is in an acceptable location and that it has enough bedrooms and bathrooms to suit your needs.
However, in addition to those qualities, project houses have some unique considerations that you’ll need to keep in mind. In particular, when house hunting, you’ll need to take into account the extent of the renovation projects that each home needs. In this case, if you don’t make sure that the property’s home repair needs match your capabilities, you could end up getting in over your head and negatively affecting your savings account.
If you've already found the home you want to start working on, visit an online mortgage broker like Credible to get personalized rates and pre-approval letters without affecting your credit score.
Consider the additional costs
Lastly, there are a few additional costs to think about before you buy a home. Namely, you’ll want to keep an eye out for the ongoing costs associated with owning a home. In this instance, it’s important to secure the lowest possible mortgage interest rate. In general, mortgage rates are determined by your financial situation and credit score, so you should do your best to make sure your finances are in good shape before you apply for a home loan.
Next, you should consider how you’ll pay for supplemental costs such as property taxes and homeowner’s insurance. While property taxes and homeowner’s insurance will likely initially be collected as part of your monthly mortgage payment, as you build up more equity in your home, you may have the option to pay them outright and you’ll need to budget for those costs.
Lastly, you’ll also want to plan for unexpected home maintenance costs. If the water heater breaks, for example, you will need to be able to cover those costs, which can end up being hundreds of dollars. As a rule of thumb, it’s a good idea to plan to spend around 1% of the home value to cover maintenance costs each year. While that may sound like a lot, remember that keeping up with preventative maintenance can actually help with saving money in the long run.
Do you have more questions before buying a home? Visit Credible to get in touch with experienced loan officers and get your mortgage questions answered.
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