In a competitive real estate market, fixer-uppers may become a good option for some home buyers. Often times, fixer-upper units start with a lower listing price and they are not the most appealing to the majority of the competing home buyers. However, the following should be taken into considerations when purchasing a fixer-upper property:
If the property’s condition is too poor, you may not be able to obtain financing. Even if you were able to find “specialty” lenders that will finance the loan, they may only offer 60 to 70% of the purchase price. In that case, you will be coming up with a larger down payment up to 30 to 40% instead of 10 to 20%.
In order to make the unit habitable, you will have to hire a contractor to renovate the home. Therefore remodeling cost becomes extra cash required on top of the down payment. Another option is to remodel on the “necessities” before you move in and continue with the remodeling process after you have moved in. Apparently, a smaller amount of upfront cost will be required but probably you’ll be living in dust for the next year or two or until the remodel is complete.
Remodel process typically begins upon close of escrow. During the remodel process, you’ll probably be paying double mortgage until remodel is complete.
Last but not least, remodeling can be stressful and requires your time. I am sure we all have heard horror stories from homeowners, friends and co-workers about dealing with the City and contractors.
Fixers-uppers are not for the faint of hearts.