Your guide to buying a fixer-upper

If you’d like a home with a lower purchase price or your budget doesn’t allow you to purchase a home in near-perfect condition, you might consider a home that needs some work. Buying a fixer-upper below market value can be a smart move if you’re looking for more square footage or to buy a home in a great location.

Before you start your home search, do your research to make sure you know what you’re getting into. These fixer-upper FAQs can help you understand financing options, discover how to make an offer and weigh the pros and cons.

What is a fixer-upper?

A fixer-upper is a property that needs maintenance updates, ranging from cosmetic fixes to major renovations. In contrast, a move-in ready home is one that doesn’t require repairs or improvements.

What are the pros and cons of buying a fixer-upper?

Buying a fixer-upper can be rewarding and provide an opportunity to buy a home below market value.  But this type of home can come with challenges borrowers need to be aware of.

The advantages

  • Lower home price: buy a property at a potentially lower purchase price, in a great location.
  • More customization: create a home that suits your budget, lifestyle and taste.
  • Pay over time: borrow more based on your home’s improved value with a renovation loan and pay over time.

The challenges

  • Discomfort during construction: you may not be able to move in right away, or you may need to live in a work zone.
  • Hidden expenses: there’s a potential to go over budget if your repairs uncover hidden issues that require additional construction.
  • Uncertainty: renovations require patience because they may take longer than you expect.

How do I buy a fixer-upper?

If you’ve decided that purchasing a fixer-upper is the right choice for you, it’s time to determine how to finance your renovations. If you want to make home improvements immediately after you purchase, a renovation loan can give you the funds needed to cover the mortgage and repairs.

Are there mortgage loans for fixer-uppers?

Yes! The best type of loan for your situation may depend on the condition of the home. Is the home livable but needs a few cosmetic fixes? If new paint is all you need, then a conventional loan may be a good fit.

If the home needs significant structural improvements, like a bathroom or kitchen remodel, or upgrades to electrical and plumbing, you might consider a renovation loan. A renovation loan allows you to purchase or refinance a home in almost any condition, make improvements and pay for them over time by consolidating the cost to buy or refinance with the estimated remodeling costs. Here’s a look at three loan programs to consider.

  1. Conventional renovation
    This loan offers the most flexibility in terms of which renovations are possible. With the FNMA HomeStyle Renovation loan, you can make nearly any upgrade to your home.
  2. FHA 203(k)
    This government renovation loan is a good option if you’re planning on a larger or complex project, and you need the flexibility of a low down payment.
  3. FHA 203(k) limited
    This program is designed to finance projects that can be completed quickly and easily, such as minor repairs or cosmetic improvements like new flooring or appliance upgrades.

How do I make an offer on a fixer-upper?

The most critical step before making an offer on a fixer-upper is to get pre-approved for a renovation loan so you know how much you can spend. With a pre-approval letter from an experienced renovation specialist, you can start home hunting. Many sellers look for pre-approved buyers because it gives them confidence that you can secure the financing needed to complete the home purchase.

Once you’ve found a home, it’s essential to understand the changes you’ll need to make and how much they’ll cost. Get a licensed general contractor to do a walkthrough and provide a written estimate on the necessary renovations. To calculate your purchase offer, “take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs,” advises Houselogic by REALTORS.

Chat with one of our experienced renovation specialists to find out how to qualify for a renovation loan today.

Guild Renovation programs are eligible in the following states: AK, AZ, CA, CO, HI, ID, MO, NM, NV, OR, TX, UT and WY.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.