So you have realized that you can’t quite find what you really want in your ballpark budget. You have binge-watched HGTV and come to the conclusion that what you need is a fixer-upper! You want to have some input into the updating, put a personal touch on your space, make this house your own unique home (and have a monthly mortgage payment that doesn’t bring you to tears).
Congratulations. You are in the perfect position to bring a house back to life! I have learned a few things in the years that I have worked with agents, home-buyers and lenders, helping to budget, design and execute the renovations necessary to make the money and the dream work together. I will walk you through an outline of the process and drop as many tasty morsels of wisdom into your mind as I can—though please add comments and ask questions, because through dialogue, we will uncover a lot more useful information.
Where do you need to be?
The hardest thing to change about any house is the location. And it is one factor that plays a considerable part in your daily life. Be very honest with yourself when considering commutes to work and school, proximity to places you go frequently. Drive through neighborhoods you are considering to see what the traffic is like (is there a row of elementary schools that will drop the speed limit down to 15 miles an hour on your morning drive?) at various points in the day and evening.
Try to leave yourself with a range of neighborhoods that might work, taking school districts into consideration. You don’t want to narrow your search criteria too much because it may extend your search time.
How much do you need?
Having carefully selected the right agent to work with on this major purchase, you will now bring your lender into the mix. This will be the power team. Be sure to discuss lender options with your agent because many banks have a limited number of lending products available—a mortgage broker may be able to offer you more options and your agent knows these people well (ie: who can really get you to closing on time, who is responsive to questions and deadlines, who will work a little harder to find exactly the right loan for someone who might have a challenging situation).
There are currently several conventional loans available which offer a very low downpayment and some even offer lender contributions. 203K loans (commonly called ‘rehab loans’) are another option to consider (I have a lot of direct experience with these loans from my contractor days, so feel free to ask any more specific questions). While FHA offers some great features for certain buyers, it is important to keep in mind that there are condition requirements that the property must meet, so for a real fixer-upper this might not be the best route.
Sit down and take a good look at your finances. How much cash do you have available? Do you need the renovation cost to be built into the loan? Work with your lender to determine the best financial approach. Keep in mind that it is essential to build in a 12-15% contingency, i.e.: part of the reno budget that you do not touch, because there WILL be work that you did not anticipate, costs that you didn’t budget. Working in the restoration industry this was standard practice and really became the key to helping customers make it through their renovation with a smile on their faces.
Another thing to consider is how much work you would really be comfortable doing: what feels like too much? Obviously money is a factor here as well, but some people are really only confident taking on minor updating (painting, maybe updating some flooring), while others are content to gut kitchens and baths or move walls around.
A word on roofs: Here in Florida, insurance companies take roofs very seriously. An asphalt roof older than 15 years is likely going to require either replacement or a note from a contractor stating that it has at least 5 years left in good condition. If you need to replace a roof, take a serious look at the possibility of investing a bit more in a metal or tile roof product. Not only are these more environmentally friendly, but they last decades longer (seriously like 5 times as long) than asphalt shingle. It is one of the smartest investments you can make in a home, even if it isn’t the most glamorous.
Once you have your figures in mind, know where the money is coming from and how much you are comfortable spending on purchase price, get a letter of approval from your lender.
Working alongside your agent, view potential properties and work through draft renovation budgets prior to submitting any offers. You want to be sure it is feasible before you start spending money on inspections, so look carefully at the scope of work required to make that property work for you.
Make an offer and let your agent negotiate on your behalf.
During the inspection period, be prepared to have your contractor and designer there to do walk throughs while the home inspector and pest inspector are on site. Your creative team will need to do sketches and prepare preliminary quotes so that you can be confident moving forward with the purchase. I have helped customers pull together all of this data to have a clear picture of the budget, and how that investment will affect the value of their home. You want to be careful not to over-invest.f
I know this part can be hard, but get out your wallet. It will be worth it. Paying a professional contractor or designer for their time ensures that you will be getting the most accurate quotes possible. When people are expected to show up and work without being paid for their time, bids are often unrealistic (high or low) and then it is hard to get the work actually done for that amount because people will disappear if they have underbid rather than lose money on a job. Many contractors will make the price of the proposal deductible from a signed work order, so if you proceed with the purchase and move forward with their services, they take that amount off the final bill.
Your agent will negotiate any repair requests or concessions. With fixer-uppers sellers are usually in the mindset of selling it ‘as is’ so it is not often that major negotiating happens at this time.
As you move towards closing, review all the contractor and designer bids and make sure you are comfortable with your selections because immediately after closing, you will want to sign the work orders and get started. It will be much easier for everyone (and cheaper) to complete the work prior to you moving in to the property.
Now get settled in and enjoy your beautiful home!