Considering a Fixer-Upper for a First Home?

Some first-time homebuyers consider purchasing a home that is not necessarily ready to move into at the time of purchase.

With the recent increase in the numbers of short sale and foreclosed properties, more and more first-time homebuyers are considering the purchase of homes that need work. And even before that, buyers thought of buying homes that needed this kind of work in order to purchase a home for less money and in which they could instantly gain equity once repairs were completed.

If you are considering this, however, there are some things to consider beyond just the cost of those repairs, including living arrangements, financing, and knowing what the true future value of the home will be.

First, many first-time home buyers currently live in an apartment or rental home. The maintenance of this home or apartment is usually done by someone else. There is a natural adjustment. For almost all first-time homebuyers that they are the ones responsible for making repairs to the home they just purchased. Adding larger repairs or wholesale improvements to home can add to the stress of this adjustment. The coordination between the termination of a current lease and moving in to the purchased home can be tricky enough let alone adding to that the estimation of when larger improvements will be completed. Living in the property while repairs or improvements are being made can add an additional layer of difficulty to one's life.

Secondly, most financing programs utilized by first-time homebuyers are not repair and improvement friendly. The amount, and indeed the approval for the loan itself, is usually based on the final appraised value of the home as it meets the standards of the financing program. Loans that allow for the future improvement of the property to be built into them usually require a down payment larger than those normally available to first-time homebuyers. Only very specific programs within FHA or other government loans allow for repairs to be built in the loans, so make sure if this is something you want to do that it is something you can accomplish using a home loan.

Finally, in recent times it's been harder and harder to estimate what the future value of a home will be. In a time of even slightly decreasing home values, a buyer who makes large improvements or repairs for property may face an extended time for the recapture of the money spent on those repairs and improvements. Be very sure that the money you spend is money that can be returned to you if you, for some reason, needed to sell the property earlier than initially planned.

Our job here is not to discourage a buyer from purchasing a home that needs repairs or improvements done simply to spell out some of the things that you need to consider before doing so.