Everything You Need To Know About Buying a Fixer-Upper Home

This article covers everything you need to know about buying a fixer-upper home. Homebuyers can purchase owner-occupant primary fixer-upper renovation loans with FHA, VA, USDA, and conventional loans. Many homebuyers looking to buy, rehab, or renovate their homes may find the FHA 203(k) loans a great program. FHA 203k loans are for owner-occupant homes only. FHA 203k loans aim to support people in their efforts to revitalize their neighborhoods.

FHA 203k loans are for homebuyers interested in homes needing repairs or upgrades. It is a combined acquisition and construction loan with a 3.5% down payment of the improved value.

FHA 203k loans are very popular loans for homebuyers buying a fixer-upper home. However, FHA 203k loans are only for owner-occupant homes and not investment properties. The proceeds can be used for both the purchase and rehab loan amounts. FHA 203(k) loans are also for people who want to refinance their homes and pay for repairs. They can refinance their existing mortgage and get a bigger mortgage that includes the construction costs. In the following paragraphs, we will cover buying a fixer-upper home with FHA 203k loans.

Prequalify for an FHA home loan now.

Benefits of Buying a Fixer-Upper Home

Buying a fixer-upper home is very popular among real estate investors and a rewarding project, but it also comes with challenges. In the following paragraphs, we will discuss some steps to consider if you’re considering purchasing a fixer-upper home. Determine the acquisition cost and your renovation budget.

Get cost estimates. Obtain multiple quotes from contractors and tradespeople for the work you plan to do. This will help you budget more accurately and avoid unexpected expenses.

Before looking at fixer-upper homes, determine the purchase and renovation costs. Be sure to factor in the purchase price and the cost of repairs and renovations.  Decide what you want to achieve with the fixer-upper. Are you looking for a property to live in, flip for profit, or rent out? Your goals will influence your approach to renovations and the budget you set.

Getting Pre-Approved Buying a Fixer-Upper Home

Getting pre-approved for a mortgage is the first step in buying a fixer-upper home. What type of fixer-upper home are you buying? Will it be an owner-occupant home? Will it be an investment home? Will it be a fix-and-flip home?

There are various options for financing a fixer-upper home.  If you plan to finance the purchase, get pre-approved for a mortgage so you know how much you can borrow.

This will help you narrow down your options and make more informed decisions. Remember that buying a fixer-upper can be labor-intensive and financially demanding, so it’s crucial to be well-prepared and have a clear plan. If you need to become more experienced in home renovations, consider hiring professionals or consulting experts to help guide you.

Research Location Buying a Fixer-Upper Home

Research the real estate market where you want to buy. Look at property values, neighborhood trends, and the potential for future appreciation. Work with a real estate agent experienced in buying fixer-uppers. Real estate agents can help investors find properties, negotiate deals, and provide the right location for the best potential appreciation. You do not want to pay too much for the home and run into renovation overruns.

Factor in contingencies when thinking of buying a fixer-upper home. Set aside a contingency fund for unexpected issues during renovation. It’s common for unforeseen problems to add to the overall cost.

Hire a qualified home inspector to assess the fixer-upper. Look for structural, electrical, and plumbing problems and other major concerns. The inspection report will help you estimate repair costs more accurately. Negotiate the purchase price: Based on the inspection and your renovation plan, negotiate the purchase price with the seller. They may be willing to lower the price or provide concessions to account for needed repairs.

Buying a Fixer-Upper Home With FHA 203k Loans

Due to rising house prices, loan limits have been raised to $472,030 for FHA 203(k) loans in median-priced areas and $1,089,300 in high-cost areas. This is the seventh year the U.S. Department of Housing and Urban Development (HUD) has called for increases. There are two different types of FHA 203k loans:

• FHA 203(k) Streamline: This loan covers acquisition costs plus a maximum of $35,000 for construction.
• FHA 203(k) loan: There is no limit on the construction budget if the total loan amount does not exceed FHA loan limits for your area. This loan is often used for room additions and structural changes to the existing home.

Homes that are fairly new and at least one year old can qualify for the 203(k) loan program. One to four units qualify, as well as FHA-approved condominium units. Teardowns qualify for the 203(k) loan program if they are on the original foundation. Total teardowns can be done if the new home is built on the existing foundation.

What Kinds of Repairs Can I Make Buying a Fixer-Upper?

Create a renovation model and plan. Develop a detailed renovation plan that outlines what needs to be done and how much it will cost. Prioritize essential repairs over cosmetic upgrades, especially if you have a limited budget. FHA 203(k) loans are not for millionaires to build mansions. Luxury items like swimming pools do not qualify. Here are some repairs and upgrades that do:

• HVAC
• Plumbing and Electrical
• Roofing and siding
• Energy conservation
• Kitchen and Bathroom
• New appliances
• Decks, driveways, and patios
• Room additions or second-story additions
• Attic and basement
• Site grading

See today’s FHA mortgage rates.

Secure Financing Before Buying a Fixer-Upper Home 

Once you’ve agreed on a purchase price, finalize your mortgage financing and other necessary loans before entering into a real estate purchase contract secure financing. There are owner-occupant renovation loans and alternative renovation loans for investment properties. You can qualify and get pre-approved for FHA, VA, USDA, and conventional renovation loans on fixer-upper homes. Once you have secured financing and gotten pre-approved, complete the home purchase. Close the deal and take possession of the property.

Do You Qualify for an FHA 203(k) Loan?

Getting an FHA 203(k) loan with Gustan Cho Associates is not difficult. Gustan Cho Associates is a national mortgage company, and we are experts in originating FHA 203(k) loans in 48 states, including Washington, DC, Puerto Rico, and the U.S. Virgin Islands.  Applicants must go through the regular mortgage approval process, but you only need a minimum credit score of 580. We handle the entire process, and our mortgage underwriters review and analyze the following:

• Income
• Debt
• Liabilities
• Assets
• Credit history
• Credit scores
• Contractors’ bids

Begin Renovations

Execute your renovation plan, examining the budget and timeline closely. It’s essential to stay organized and make informed decisions throughout the process. Obtain the necessary permits: Check with local authorities to ensure you have the required permits for your renovations. Please do so to avoid legal issues and fines. Monitor progress. Stay involved in the renovation process and communicate regularly with contractors to ensure the work proceeds as planned. Complete the renovations: Once all the renovations are finished and inspected, you can move into your newly improved home or proceed with your chosen investment strategy.

Owner-Occupant Versus Investment Renovation Loans

There are many mortgage options for fixer-upper financing homes. However, you cannot get an owner-occupant primary fixer-upper home loan with hard money loans. You can get a fixer-upper primary home loan with an FHA, VA, USDA, and conventional loans. Investment home loans require at least a 20% down payment.

Borrowers need to get a scope of work and have a general contractor with no relationship with the mortgagee. Rates on renovation loans are slightly higher than traditional purchase or refinance loans.

There more costs and fees are involved. You can contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. You can also email us at gcho@gustancho.com. We are experts on renovation loans and are available seven days a week, evenings, weekends, and holidays.