Are you thinking about purchasing a home in need of some TLC? Depending on where you plan to live, you might have experienced a shortage of options during your home search, leading you to weigh the pros and cons of buying a fixer upper.
We’re here to provide a guide to the opportunities and challenges of purchasing a home that requires moderate to extensive renovation and repairs.
Here’s our first tip: Home renovations and repairs can vary greatly cost-wise. Newrez offers renovation loans that can make financing your ambitions easier.
Key Considerations Before Purchasing a Fixer-Upper
One advantage of buying a fixer-upper is the lower purchase price and the potential for a great return-on-investment once renovations are complete. But remember, when buying a home in need of repair, it’s important to understand the size and scope of what needs to be done. Repairs can cost tens of thousands of dollars, and you’ll want to run the numbers up front to be sure the purchase makes financial sense for you.
- Get quotes from several licensed professionals to get a handle on how much the repairs might cost. Many times, some items in need of repair aren’t things you notice when you first tour the home, such as the roof, foundation, electrical and air conditioning.
- Repair costs should be accounted for in the purchase price of the home – be sure to highlight this in negotiations with the seller. Sometimes you can get sellers to perform some of the repair work before closing.
- Consider how long you plan to stay in the home. If you’re focused on renovating the home to resell, you might want to research local market trends and make renovations in line with buyer preferences. (For example, do many of the homes in the area feature granite countertops or smart thermostats?) However, if you plan to live in the home longer-term, you can make upgrades more specific to your own tastes.
Your main focus is ensuring you can afford the cost, time investment and any associated risk.
Financing Options for Fixer-Uppers
Here’s what Newrez mortgage experts say:
A renovation loan is a type of mortgage that allows you to finance your renovation expenses, whether you’re buying a home or refinancing your current home. These loans are unique because they may let you borrow more than your home’s current value – rather, you can borrow funds based on your home’s projected value, enabling you to use those funds to complete renovations.
Here’s how Newrez’ renovation loan process works: Once your application is approved, you will need to get a contractor to give you a detailed bid outlining the work to be done. If Newrez approves the bid, we send an appraiser to give us an estimate of what the home’s value will be once renovations have been completed. The loan is paid out in increments as different stages of your planned renovation are finished.
Newrez offers FHA renovation loans as well as renovation loans via Fannie Mae® and Freddie Mac®. Loan limitations apply – reach out to our mortgage experts today to get full details.
Essential Renovation Tips
Starting a large-scale home renovation can be daunting, but you can avoid common renovation mistakes by following these steps:
1. Get clear on your vision – and your budget. You might be eager to make design upgrades, but first make sure you can complete essential repairs before spending your budget on aesthetic changes. Once you’ve prioritized your projects, get specific about what changes you want and what materials you will use.
2. Create your timeline. Don’t set too tight a renovation schedule, because snags are bound to happen. Make sure your renovation timeline makes sense with the pace of your own life – you’ll want to be as available to contractors as you can while working and meeting other obligations. If you need to, be sure to have alternate living arrangements while work gets done in the home.
3. Find the right licensed professionals. Your renovations will benefit from finding contractors with great recommendations – look for experienced people who reviewers describe as reliable. During the work, make sure you’re in regular communication with your contractors.
4. Check local ordinances. Make sure you have any permits required by your local government agency, and bear in mind that a city inspection might be required before you begin.
Best Home Renovations for Return on Investment
If you’ve got your eye on resale value, here are some renovations that help improve the home’s curb appeal and get you some bang for your buck. These rankings are based on 2024 data drawn by Remodeling trade magazine.1
1. New Garage Door
Replacing the garage door with a more modern sectioned door could recoup close to 200% of the cost of the project in resale value.
2. New Entry Door – Steel
Increase the sense of security at the front entry by installing a hardier front door – look for stylish one that suits the rest of the home’s exterior.
3. Manufactured Stone Veneer
If the home has vinyl siding, class up the exterior by replacing vinyl with a beautiful stone finish. Correct installation is key – you want the finished product to be weather-resistant.
4. Grand Entrance
Go a step beyond installing a new entry door by reframing the entry to add decorative windows alongside and over top of the door. Complement the entryway with attractive entryway lighting.
5. Minor Kitchen Remodel
Is the kitchen functional, but a bit dated? Minimize cost while maximizing resale value by replacing cabinet doors with more modern ones, getting new, energy-efficient appliances, replacing laminate countertops, upgrading the flooring, repainting and installing a new sink.
Final Thoughts
Once you’re confident you can handle the demands of a fixer-upper home, lock in your financing by getting a renovation loan. If you’re not sure which renovation loan is best for you, our loan specialists are available to answer questions and walk you through your options. Get ready to knock down some walls!
Fannie Mae® is a registered trademark of the Federal National Mortgage Association.
Freddie Mac® is a registered trademark of the Federal Home Loan Mortgage Corporation.
None of the above-mentioned companies are affiliated with Newrez LLC.
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