When Does It Pay to Buy a Fixer-Upper?

Tuesday, January 10, 2017  


Low housing inventory is making fixer uppers more appealing to many home buyers. Home buyers can stretch their budget by buying a fixer upper home in a more desirable location or with less long-term compromises than their budget would usually allow. For first-time home buyers, a fixer upper provides the opportunity to enter the market at a lower price point than a fully renovated home.

How to decide if a fixer upper home is a good investment?

When looking for a fixer upper, search for a home that can be purchased at below-market rate and where you can add value with renovations. Avoid renovating the home beyond fair market value, unless the neighborhood is gentrifying and home values will increase substantially in the next few years.

The simplest fixer upper to renovate is a dated home with a solid structure. A renovated kitchen is the #1 way to get the highest return on your investment. Select a quality counter-top that complements the new cabinets and neutral colors for the back splash. Your local big box home store can provide advice on current styles and trends.

Structural improvements should bring the home up to neighborhood standards. For example, remove walls to create an open living/dining/kitchen space, reconfigure the master bedroom and bathroom to create a master suite, add an extra bedroom or master suite in the attic.

Other lucrative improvements include new lighting fixtures, refinishing wood floors, add trim, replace popcorn ceilings with drywall, build or replace a back deck, replace siding, add window treatments and landscaping.

What home loans are available to renovate a fixer upper?

Starkey Mortgage offers Conventional, VA and FHA loans that allow you to simultaneously finance the purchase price and combine it with the renovation cost into one home loan. The loan amount is based on the value (LTV) of the home after improvements.

FHA 203(k) home loan will finance 96.5% of the purchase price and 97.75% of a refinance for owner-occupied homes.  All renovations must be completed with in 6 months of closing.

Conventional FNMA HomeStyle Renovation Loan finances the purchase or refinance of an owner occupied home up to 95% with mortgage insurance or 80% without mortgage insurance. Additional options are available for second homes and single family rental properties. All renovations must be completed within 6 months of closing.

VA Renovation Fixed Rate Program finances the cost of repairs and renovations up to 25% of the lower of property sales price or appraised value of the home. The program applies to fixed rate 15-year or 30-year loans only. An eligible veteran may be eligible for up to 100% financing (even if used previously). All repairs and renovations must be completed by an approved contractor within 90 days of closing

All home loan programs will insist that the correct permits are obtained and the renovation work must be reviewed and sign off on by an inspector. Starkey Mortgage will hold the loan money in escrow and pay the contractor directly as they complete stages of the work.

Contact a Starkey Mortgage loan officer in your state to discuss your renovation home loan options.

Image: the house pictured above was renovated by Magnolia Homes and appeared on an episode of HGTV’s Fixer Upper.



First-Time Homebuyer, Home Buying, Home Improvement,