So, you’ve finally found your dream house. Sure, it may need a little work — okay, a lot of work — but you’re confident it will all be worth it in the end. That is, until your home renovation projects start to go down the toilet (or worse, the toilet starts falling through the floor). Here’s how to know if the home you are considering could be a great investment, or just a great way to empty your wallet. Is A Fixer-Upper the Right Choice For You? The right fixer-upper can be a great investment and a lot of fun. The rise of seemingly simple, yet stylish home renovation television shows has made many homeowners eager to transform rough diamonds into neighborhood jewels. Couple this with the improved job market and an upswing in home values, and you have a tidal wave of homeowners willing to invest in fixer-upper dwellings. In 2018, homeowners reported an average of $7,560 or more on major home improvements, up 17% over the previous year. But that doesn’t mean that these projects always go as planned — not everything gets wrapped up as quickly and neatly as it does on television. The same Home Advisor study shows an average of $416 on emergency spending. What many homeowners believe to be a simple “fixer-upper” can quickly turn into a “money pit,” transforming a dream project into an expensive nightmare. Denise Krogman is a general contractor, designer and co-owner with her husband Rob, at RDK Design and Build, LLC. Krogman knows that whether you’re looking to buy a fixer-upper in the near future or remodel your current home, it’s worth paying attention to what separates a fixer-upper from an endless money pit. The right fixer-upper can be a great investment and a lot of fun. But with every remodel there will be the unplanned, unforeseen incidentals that arise. If it needs more than a little ‘fixing up,’ you could find yourself in the midst of a complete remodel or a total scrap. Fixer-Uppers vs. Money Pits The first step to understanding what makes a home a fixer-upper is defining the term. Generally speaking, a fixer-upper is a house that doesn’t have serious problems and can be quickly and inexpensively refreshed, says Thomas Baker, building technology editor at This Old House. Homeowners who have a big budget, a high level of DIY skills, and plenty of free time may reasonably see any house in deplorable condition as a “fixer-upper.” However, even these skilled, experienced homeowners who are initially excited about a big project may fail to properly plan for a remodel. Without thorough research and planning, many homeowners are likely to exceed their spending limit and wind up with a money pit. Baker separates remodel-ready homeowners into two personas: the visionary and the accountant. A visionary homeowner is someone who is emotionally invested in their property and can tolerate higher expenditures in order to execute their ‘vision.’ He or she isn’t worried about the resale value. An accountant weighs each cost of improvement against the likelihood of getting a return on investment at the time of sale. Ideally, homeowners should strike a balance between these two extremes, taking care not to risk their financial futures with unsustainable expenditures on improvements, but also acting as a steward, putting something back into the house so that future generations can enjoy what it has to offer. A professional home builder, general contractor, or home inspector can help a homeowner assess the condition of the home before breaking ground and help keep a project in line once it’s begun. Having that person come aboard your planning process is a great step to take. But what should they, and you, be looking for when it comes to fixer-upper warning signs? Looking to get started with your dream home project? Check out our guide to the financial documentation and other paperwork you’ll need to begin the home loan process. Fixer-Upper Red Flags If you are committed to buying a home with a few imperfections, how do you know when those imperfections go from fixable to serious deal-breakers? When purchasing a fixer-upper, a homeowner should always look beyond the surface, says Sarah Boardman-Miller, an interior designer and construction consultant. It’s important to distinguish between a home with a lot of “cosmetic” needs, as opposed to those that need major (think structural) overhauls. Depending on the ‘fix-up’ budget, one can look past a dated or poorly laid out kitchen or bath. I like a house that has not been touched. It might be dated and original everything, but these are usually good houses. Do your homework. Was the previous owner there for 40 years? Is it clean? Well-kept? When most people watch the [TV] shows, so much of the process is cosmetic … from new cabinets, to counter tops, lighting and tile. Often homes are simply outdated, are decorated in poor taste, or just in need of a little TLC. Cosmetic fixes can be quick and cost-effective, and completely change the look of the house. That being said, homeowners should stay on the lookout for any red flags. Both Krogman and Boardman-Miller say foundational issues, roofing repairs or replacement, and electrical or plumbing problems may require “gutting,” which can send a home remodeling project into an expensive tailspin. Krogman adds that her team is careful about homes that need footprint changes, such as the removal or addition of walls or entire rooms. It’s best if the changes are minor. To avoid any surprises, it’s important to invest in a thorough home inspection, says Krogman. Always request an inspection from a highly reputable company. It’s worth the extra expense. Be sure to ask a lot of questions and get documentation. When was the roof last replaced? Have there been any electrical or plumbing fixes? If there was any previous remodeling done, was it done by a reputable general contractor? And look for cracks in the foundation, sinking sidewalks, water spots or damages in the drywall. Those fixes or changes are rarely minor and can become quite costly. Frank Lesh, an experienced home inspector who works for the certifying agency American Society of Home Inspectors, has two potential problems he wants homeowners to check for within their possible fixer-upper. First, he says, examine the exterior. Take a look at the big picture. If it’s sitting in a valley, the home may be at risk for water problems. Then I look at the general maintenance of the house exterior. Not whether there’s new paint, or flowers, but if the gutters and downspouts are in good condition and directed away from the house and if the roof is in reasonable shape. Next, inspect for insects. Termites and carpenter ants can gnaw away at the bones of a home. It takes an expert insect inspection to discover the extent of the damage, to check behind finished walls and ceilings and to see if bugs are in the walls and subfloors. A house is made of wood, and that’s what they eat. A good pest inspector can hear them or use infrared to see if they’re giving off heat behind the walls. Manage Your Remodeling Expectations One of the biggest dilemmas homeowners face when dealing with a fixer-upper is managing their expectations. Even when a home remodel is expertly planned, problems may still arise, Boardman-Miller says. It is all about expectations and the ability to roll with what is happening. You have to focus on what needs to be done and cut out the extras that you may have been planning. Be realistic and stay on budget. If you do your homework, you could end up with a fair amount of equity in the finished house and get what you really want. Baker says one of the most important things homeowners can do to avoid these costly issues is research, first into the home purchase process, then into contractors, home designers, and home improvement costs. Find a contractor/carpenter who loves to work on houses and whom you can trust to make good decisions on your behalf. Without trust, these projects can become a nightmare. Take your time. Watch home TV shows, read magazines, talk to contractors, and go to the web to become an expert on the topic [of remodeling]. When homeowners embark on a home renovation the risks are great, but the rewards are even sweeter when everything is well planned and executed, Krogman says. One man’s junk is always another’s treasure, so not only can you benefit financially, but you can give back by creating a beautiful home for your own family, or for someone else. CHECKLIST: Tricks for Separating Fixer-Uppers from the Money Pits Get a thorough home inspection Determine whether improvements are structural or cosmetic Do your research on what you’d specifically like done Talk to your contractor/designer and get a plan in writing Financially prepare for unforeseen issues Manage your expectations and stay on budget How do you know a home’s true value? Get a fast, no-obligation home estimate using our free tool. Getting From ‘Before’ to ‘After’ Without Going Broke At the end of a well-planned remodeling project, you can end up with the home features you want for a lower cost than the amount of equity you gained. It’s also possible that a lack of insight into your process and potential costs could leave you with an underwater (and maybe even unfinished) home, so it’s essential to make sure you know the facts before you swing a single hammer. But don’t let those potential pitfalls scare you away from a great opportunity for a smart investment. Just make sure you follow the checklist above and do the necessary homework to give yourself the best chance to come out ahead of the game. Have you done your research and know of a great home you can benefit from investing in? If you are ready to explore buying your own fixer-upper, take the first step and get pre-approved online or contact a PennyMac Loan Officer today to discuss your options. The views, information, or opinions expressed in this blog do not necessarily represent those of PennyMac Loan Services, LLC and its employees. The inclusion of links to third party sites is not intended to assign importance to those sites or to the information contained therein, nor is it intended to endorse, recommend, or favor any views expressed, or commercial products or services offered on these third party sites, or the vendors sponsoring the sites.
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I have flipped more than 200 houses in my career and while I love flipping, it is not easy! We have flipped 26 houses per year multiple times, and I can truly say that the more houses you flip, the more problems you have. Now, when I say house flipping, I am talking about buying … Read more
When your home is a fixer-upper, it can be difficult to even know where to start with a renovation. The list can be overwhelming—fix the patio, change out the mustard yellow carpet, buy furniture, paint the house. With a never-ending to-do list, planning a budget can seem virtually impossible.
By sorting through your list of wants and needs and focusing on essentials, you can outline a budget that won’t keep you up at night. Here are some tips on how to plan a budget for turning your fixer-upper into your first dream home.
1. Sort through the “wants” and “needs.”
Where do you even start with a renovation budget? With a limited fixer-upper budget, it’s essential to make functionality the first priority. When the roof is leaking and your fridge is dead, this is where the budget begins. First, determine what infrastructure items require repair or an essential upgrade, as these are typically big-ticket items. Next, focus on beautifying projects that will reap benefits in the long run, like bathrooms and kitchens. Hold off on budgeting fancy appliance upgrades and expensive decor if you already have working items—these can come at a later time after you take care of all the essentials.
2. Consider purchasing used over new.
Give your budget more flexibility by going for used over new with certain big-ticket items. Used appliances, for instance, can be found in great condition from other remodels or homeowners upgrading to the latest technology. Used furniture is also a fantastic way to keep your fixer-upper budget low. Don’t forget—sofas, vintage chairs, tables and more can be easily reupholstered and refinished. They’ll look brand new for just a fraction of the cost.
3. Be ready to DIY with a gift card.
As a first-time buyer, there’s a 99 percent chance you’ll be diving into the realm of DIY. Learning one or many DIY skills will not only come in handy with home repairs in the future, but it’s a fantastic way to keep labor costs low. If you’re worried your DIY supply budget will get out of hand, however, shop with a gift card to your local hardware store. That way, you’ll always be working with a fixed amount of money and won’t be tempted to add on any expensive extras. It’s a guaranteed way to keep your budget in check.
4. Get creative.
Fixer-uppers are great hands-on projects, and creative solutions are key for keeping your budget in line. For items like cabinetry that may be in good condition but out of style, get creative with refinishes to bring new life into your space. Give your kitchen a fresh take by painting cabinets in a modern shade, or reface them for a whole new look without the added cost of all-new cabinetry. Replace hardware on cabinetry, furniture and built-ins to make your pieces feel brand new. Even outdated fireplaces, doors, furniture and windows can go a long way with a fresh coat of paint and new hardware. Consider this cheap alternative to help save room in your budget for the fun stuff.
5. Let the professionals help.
Whether you’re starting with the kitchen or diving into a full-scale remodel, don’t be afraid to seek professional help. No matter what your budget, a professional’s advice can help ensure that your renovation has as few hiccups as possible. City codes, minute details and hidden elements can wreak havoc on projects, so let a master guide you through those hurdles instead of trying to blindly tackle them yourself. Don’t let the potential price tag deter you from investing in having expert guidance—many architects and designers have options for paying an hourly rate. This is a great option, especially for fixer-upper and DIY projects, as it allows your plans to be looked over by professionals without the price tag of a full design scope.
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The loan purpose type specifies the purpose for which the loan proceeds will be used. The loan purpose may be to purchase a home or to refinance an existing mortgage to obtain a lower interest rate or to get cash. Mortgage industry investors track and report the distribution of loan purpose types in their portfolio in order to mitigate the risk associated with various loan purpose types. In general, buying a home represents less of a risk than refinancing an existing mortgage. Refinance transactions in which the borrower takes out little or no equity (cash) represents less risk than ……