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July 13, 2018

Is a Fixer-Upper a Good Choice for Your First Home?

By Admin In Blog Post with Comments Off on Is a Fixer-Upper a Good Choice for Your First Home?

Finding your first home is exciting and challenging. A fixer-upper could be a great way to get
into a better neighborhood for less money, or could pay off by giving you a better home or
property to sell. Before you jump in, weigh the factors relating to purchasing a fixer-upper to
ensure you don’t get in over your head.
Understanding steps
Buying your first home can be complex, and buying a fixer-upper can add to the difficulty. Begin
the home buying process by establishing a realistic budget. For the most part, you should look
at homes that cost less than 2 to 3 times your annual income, and a mortgage payment totalling
28 percent or less of your monthly gross income. You will also need to produce a down
payment for your home, and lenders typically require 20 percent of the purchase price. Do
some research to know what is available in your area and in your price range. For example, the
average listing price for a fixer-upper home in San Francisco is $1.34M. Note that many buyers
have a fantasy of “flipping” fixer-uppers. This could be a realistic expectation if you make
repairs yourself or purchase in a neighborhood with rising home values, and is one of the
factors in deciding on your budget for purchase.
You should then get prequalified and pre-approved for a mortgage. Talk to a lender on the
phone for prequalification, or use an online prequalification calculator for a snapshot of what you
can afford. Pre-approval is more involved, and Time suggests exploring lenders to get the best
rates, closing costs and terms. For pre-approval, you will need to provide proof of your income,
assets, employment, and identity. Lenders will also check your credit history. If you have
complications such as a divorce, bankruptcy, lawsuits, or are self-employed, the process can be
lengthy. Once you complete the pre-approval process, you can start serious house-hunting.
Financing a fixer-upper can be even more complicated. If you can afford to make repairs out of
your own budget, that’s terrific. However, after managing a down payment, moving costs, and
other fees, many homeowners are strapped. If you need help funding renovations, one option is
to apply for a FHA 203(k) loan. These mortgages are backed by the Department of Housing
and Urban Development (HUD), which can make lenders more inclined to provide funding even
if the property offers insufficient collateral for the loan.
Fixing your fixer-upper
As This Old House explains, the most economical way to bring your fixer-upper up to speed is
by making repairs yourself. You should carefully evaluate your abilities, since many repairs
require specialized skills. If your property needs structural repairs and you want to live onsite,
you’ll need to resolve those issues first. Most handyman-types may do fine with a handful of
simple and cosmetic changes, such as painting and installing cabinets, but structural
renovations often require a professional.
You should evaluate what tools are in your toolbox as well. You can rent tools or you can
purchase your own power tools and equipment. This could include drills, sanders, jigsaws,
sawhorses, ladders, and the like. If you do decide to buy tools for your DIY work, ensure you
invest in quality equipment since tools like a well-made drill keep you working more efficiently
for longer periods of time. Whether you rent or own, remember to include tools in your budget.
You may need to hire help for more advanced repairs. Unless you have a relative who is a
contractor, this could mean substantial expense as well as a lengthy renovation process. And
some professionals point out you can run into unforeseen issues and costs when opening walls
or tearing up floors. Living elsewhere during renovations can also eat up your budget. All these
factors can end your dream of purchasing a fixer-upper as an investment property, so weigh
potential costs carefully.
Is a fixer-upper for you?
Weigh your circumstances thoughtfully. Ask yourself if you have the skills or financial position
to make a fixer-upper work for you. In the right situation, a fixer-upper can be a terrific first
home. Or it can be the opportunity to make some money to help you buy your dream home.

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