How to Buying a fixer-upper
You keep hearing the term Fix and Flips. You see it on TV and they make it look so easy. Is it really?
Obviously, you need to avoid buying a money pit.
Working with professionals will ensure that the improvements you are considering will be worth it in the end to improve the value of the home. You don’t want to over-renovate the home for the area so avoid renovations that just won’t be worth it in the end.
But how do you afford to do a renovation? When you purchase the home you will need sufficient funds for the down payment and closing costs.
It could be difficult to qualify for additional financing when you have just purchased a home and these options can also be expensive.
The great news is that there is an affordable solution – there are insured mortgage programs that will allow you to borrow up to 10 percent of purchase price for improvements to a maximum of $40,000. The property value must be less than $1 million.
Here are the steps that you need to take:
Step One: Get Pre-Approved
Obtain a mortgage pre-approval to determine your maximum approval amount. There are special programs for Fix and Flip, and Fixer Uppers. These programs are typically for investors, and not consumers that are looking to occupy the home. These programs can allow for lower down payments and fund available for the renovations. But keep in mind rates and fees are typically higher than normal conventional loans.
Step Two: Find the right property
Find a home and have a general idea of what renovations need to be done as well as their cost.
The purchase price plus the renovation cost cannot exceed your maximum approval amount for a mortgage. Lenders will request written quotes to be provided, detailing the work to be done, as well as the cost.
Step Three: Be prepared with Renovation Quotes
Once your offer is accepted, you will need to provide the accepted purchase offer, as well as the quotes for the improvements, to your mortgage broker.
A financing request will be sent to the lender which includes the cost of the renovations.
Step Four: Begin Renovations
Once you take possession of your home, you can begin the renovations. The Lender will instruct the escrow or attorney to hold the additional Renovation funds, until the lender confirms the works has been completed.
Fixing a home can be an exciting adventure. Make sure you have the right professionals that can assist you with the process.