Fixer Upper as a First-Time Homebuyer? What You Should Know Before You Make an Offer

03.10.2022 | Category: Homebuying

Buying a home in need of a little TLC may help you stay on budget, but is it really a good idea as a first-time homeowner?

You've watched all the shows. You follow all the home renovation influencers. Your Pinterest boards are complete with DIY projects you've tried and conquered.

You might feel like you're ready to take on a fixer-upper, but if you've never owned a home you may be in for a slew of surprises.

Not only are home improvement projects much more difficult than they seem on TV, the condition of your home and your budget for repairs can dramatically impact your mortgage loan options. Here are a few important things to consider before buying a fixer upper.

Staying Within Budget

While a fixer upper presents an opportunity to have your budget go farther, you’ll need to consider how much you’re going to have to spend to make  your home move-in ready, or at least comfortable. The money you save up front by purchasing a fixer-upper, and paying a lower mortgage payment will quite possibly go right into home repairs and upgrades.

While a homeowners warranty may help with some repairs like a water heater replacement or a roof leak, more custom upgrades like a bathroom or kitchen remodel, won’t be covered and could easily run over budget and cost more than the savings you earned on your purchase price. Properly budgeting and saving will go a long way in making the home renovation process less stressful.

Working with a home inspector

When you buy a fixer-upper, it's no surprise that your home inspector will come back with a long list of home repairs needed. While you might be tempted to waive your right to an inspection, it’s still wise to have one to rule out any major structural issues or unsafe conditions.

If you plan to negotiate with the property seller, you may be shocked when they come back with a rejection to your requests. Most home sellers who have listed their fixer-upper know the home needs repairs and aren’t interested in putting the work into the home. Be realistic about the repairs you’re willing to take on when considering a fixer-upper before putting in an offer or accepting a counter-offer.

Hiring professionals

When you buy a fixer upper you may intend  to do a fair amount of work yourself, you will need to know when it's in your best interest to hire a professional rather than taking on the project alone. Home repairs that include electrical, plumbing or structural changes will likely require inspections and permitting. In some areas, even replacing your air conditioner will require someone from the city to inspect and approve the installation.

This is because so much can go wrong when renovating a home and major improvements can be dangerous to you, your family and your neighbors if you're a novice renovator. After all, you wouldn't want to rewire something incorrectly and potentially cause a fire or flood your street with a plumbing accident.

Hiring professionals may seem costly or time consuming, but your real estate agent or local mortgage professional should be able to refer you to reputable professionals that will give you realistic estimates and straightforward expectations of the work needed to be done.

Applying for permits

Every state, county and city have their own stipulations for the kind of construction permissible in your area. It's imperative that you look into the types of permits you may need to secure in order to ensure your home is up to code. This is especially important if you plan to sell or refinance in the near future.

When you sell your home, one of the first questions you may get asked is if the improvements you've made on your home are permitted. This is another reason why it's so important to work with reputable professionals on your fixer upper -- to make sure your home improvements are permitted and won’t fail an inspection. 

Know your loan options

You may be surprised to learn there are many loan options that can help you finance your fixer upper. If you're considering a fixer upper that might require expansive repairs, these loans can help provide you the financing on top of your mortgage to afford large ticket improvements. These loan options can also cover issues such as structural alterations, foundation improvements and other large-scale projects.

An FHA 203(k) loan, for example, is a type of renovation loan backed by the Federal Housing Administration and lets you finance the purchase of your home as well as the cost of renovation through a single mortgage.

A VA renovation loan is also a viable option for eligible members of the military to finance their fixer upper. This loan is also backed by the federal government through the US Department of Veterans Affairs. Service members, veterans and their families can combine a VA purchase loan or VA cash out refinance to cover the costs of their fixer upper.

You can also choose to apply for a Fannie Mae HomeStyle or Freddie Mac CHOICERenovation loan. These are conventional loan options for fixer-uppers that allow home buyers and homeowners to rehabilitate or restore an existing home by financing their home mortgage and renovations in one loan.

If you think a fixer upper might be an option for you, it's important to work with a trusted lender that's familiar with the best options available to you.

When you're ready to start home shopping for your fixer-upper, be sure to work with a Mutual of Omaha Mortgage loan officer to get pre-approved and walk you through your financial picture so that you're best prepared to purchase your DIY dream home.