It’s fairly common, especially now that inventory is extremely low, for REALTORS® to receive calls from buyers looking for bargains in the form of a “fixer-upper.” Some buyers think accepting a fixer-upper might provide a much-needed price break while others are looking for something to which they can improve value through sweat equity.
Keep in mind that trying to buy a “fixer” using OPM (Other People’s Money) is not a simple process. The fact is, buying such a property with no money down is virtually impossible. Just like the auto lender who wants to ensure a car runs before they loan on it, home lenders want to be sure a house can really “house.” Buying a fixer involves much more than just the willingness to make repairs.
Remember, the two components of a loan are buyer strength and collateral (the property). Loans with little or no money down are highly scrutinized by underwriters who must cautiously assess the lender’s exposure. Lenders don’t want to be stuck with a property that will bring far less than owed at a foreclosure sale. This is exactly what happens with homes needing major repairs. These days, even a healthy down payment and good credit aren’t enough.
Prepare to Repair
Those lucky enough to find a lender willing to accept a challenged property will find that a licensed general contractor will be required to make needed repairs. A construction loan may be required. An FHA Section 235 loan (3-3.5% down payment) or a conventional rehab loan may allow a buyer with verifiable experience to make repairs themselves. It’s not an easy process and one requiring a very patient seller (not many of those these days). It may be possible to have some repairs done prior to recordation. Look around for a contractor who will agree to be paid out of the seller’s proceeds.
An appraiser is normally required to certify completion of repairs. There is an additional charge for their certification. It is getting harder and harder to get lenders to agree to any repairs after closing. In fact, withholding money for any reason has become a major issue with most lenders. Those short on patience and weak in the pocket are well-advised to consider other options.
Remember, get started however you can. With historically low interest rates, it’s certainly a great time to buy. Adjust expectations of location, house, or land size but not property condition. Today’s buyers no longer consider their home purchase a forever commitment. Start small and work your way up. Until then, remember to “Keep the Faith”…and remember to join me for our “Real Estate Wine’d Down” every other Monday at 3 p.m. as we take a deep dive into this and other hot topics. Just email me for an invite!