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Buying a House that Needs Repairs

Susan Kelly

Oct 20, 2023

Fixer-upper homes or houses that need repairs are typically listed at "as-is" prices. Due to the sellers' inability or unwillingness to maintain the property, these homes frequently display delayed maintenance.

Finding a home that meets all criteria, has an ideal layout, and is generally accepted is challenging, mainly if they are first-time homebuyers on a tight budget. As a result, many consumers going through the home purchasing process get inclined to a home that needs repairs.

Houses that need repairs and renovations sell less per square foot than turnkey properties. Buying a fixer-upper and completing those initial repairs is much more feasible with the following guidelines, even though buying a house that needs renovations and repairs can seem daunting.

How to Buy a House that needs repairs?

Research Your Options

Before making a deal to buy a house that needs repairs, upgrades, or renovations, it's crucial to do your research. The first and most vital step is engaging with a broker who knows fixer-upper acquisitions! The next step is to contact a qualified contractor who can estimate the work you'll be taking on while considering your skills, availability, schedule, and financial goals. Knowing what's involved is essential when deciding whether the house only needs a little sprucing up or more extensive improvements.

Check Your Budget

Make sure you have extra funds in your budget for unanticipated expenses because you might not be able to settle into your house immediately. This entails saving money for a short-term rental or greater-than-expected repair expenses. Determine your budget for reserves and closing costs; you may need additional funds to pay bills while the house is being built and an account to pay for higher-than-anticipated renovation costs.

Shop for a Home

You can begin looking for a home once you've determined your price range and have an approximate budget for planned upgrades. Select a real estate agent or broker specializing in fixer-upper properties; they can help in your estimation of the home's future value. They might also collaborate with contractors and experts in fixer-upper properties to reduce renovation costs as cheaply as possible.

Get a Home Inspection

You should always get a home inspection, especially when buying a house that needs repairs and upgrades. Depending on the house's condition, the inspector may propose additional examinations by roof, plumbing, septic, or foundation professionals to determine how much repair is required.

Create a Renovation Plan

Several renovation loan programs need you to build a construction plan for mortgage approval. This will generally include a breakdown of building costs and a contract between you and a licensed contractor to oversee the job until it is completed. Programs such as the FHA 203(k) may also necessitate the Department of Housing and Urban Development (HUD) inspection to ensure the project complies with government rules.

Get the Right Type of Fixer-Upper Loan

Buying a house that needs repairs or remodeling takes longer than purchasing a move-in-ready home. You need funds for the closing costs, down payment, monthly mortgage payment, and home repairs and renovations.

Renovation loans allow you to finance your home and upgrades over a long time and at a cheaper interest rate. Some renovation loan options are as follows:

Fannie Mae HomeStyle Renovation Loan

You only need a 3% down payment if you use the Fannie Mae HomeStyle® Renovation program, which enables you to borrow up to 97% of the price of purchasing and renovating your house. The HomeStyle loan can pay for anything, from costly furnishings and creative landscaping to necessary repairs and energy upgrades.

Freddie Mac CHOICERenovation Loan

With a down payment of 3%, Freddie Mac's CHOICERenovation loans, like the HomeStyle mortgage program, let you finance both the cost of a home's buying (or refinancing) and upgrades.

The appraised worth of the home after renovations, or the home price, and the cost of renovations, whichever is lesser, determine the loan amount. The program requires a minimum credit score of 620.

FHA 203 (k) Loan

The FHA 203(k) loan program covers mortgages granted by private lenders authorized by the Federal Housing Administration or FHA to cover the expenses of purchasing and repairing a home. You can also refinance your house with a 203(k) loan to make improvements.

VA Renovation Loans

Many veterans and service personnel become homeowners each year thanks to VA loans. Veterans and service personnel can use VA renovation loans to purchase a property and incorporate the expense of renovations into their mortgages.

Apply for your Fix-Upper loan.

You must submit an application for final financing and renovation approval once your purchase agreement has been accepted and you have acquired the necessary information. When your loan is ready for closing, the officer will walk you through the procedure and ask for more paperwork.



The remaining funds are distributed to the contractors. You can settle into your home once the lender certifies that the construction is complete and satisfies regional building standards and laws.

How does Escrow work when buying a house that needs repairs?

In particular situations, a lender could demand setting up a repair escrow to hold money for remodeling or repair work. Depending on the lending institution and the type of repairs, specific requirements change. When necessary, the money won't be released until all repairs have been made.

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