Buying your first home is probably the most significant financial investment you’ll make, and buying the wrong property can be costly. If you’re considering a fixer-upper to save some money and build equity through renovations, the reality isn’t as clean. These properties demand more money, time, and emotional energy than most first-time buyers expect. During renovations, you’ll face unpredictable costs, unexpected repairs, and complicated financing, all on top of living in a constant construction zone.
Buying a home should be a milestone to celebrate, but buying a fixer-upper can turn that into a source of stress. Here’s a breakdown of the risks involved with buying a fixer-upper so you can make a more informed decision.
1. A low upfront price isn’t the whole financial picture
When you’re looking for a starter home on a tight budget, you might be tempted to buy a fixer-upper, especially if you have experience doing your own home renovations. Sometimes fixer-uppers sell for significantly less than other comparable homes, but that low price comes at the cost of renovations that first-time home buyers tend to underestimate.
A Rocket Mortgage® survey of first-time home buyers found that 34% intend for their first home to be their forever home. Fewer people are buying a starter home as an investment they’ll trade for a larger home in the future. If you’re looking to buy your forever home, a fixer-upper might throw a wrench in your plans. Even if you can cover the cost of renovations, you’ll need to consider the cost of permits, inspections, and possibly higher property taxes once your improvements are completed.
When the money you’ll save on the purchase price is eroded through the cost of renovations, it’s easier to find a first-time home that you can move into right away.
2. Renovations are time-consuming and disruptive
If you plan on moving into a fixer-upper while renovations are happening, it could be months or years before you get some peace. As a first-time homeowner, this level of disruption will place a heavy demand on your time and patience. Even when you can seclude yourself in another area of the house, your daily life will be constantly interrupted. You’ll have to deal with dust, noise, limited access to important rooms (like the kitchen), and materials will be delivered and stacked all over the yard. If your goal is to live comfortably, it’s not going to work.
3. It’s harder to finance a fixer-upper
Getting a mortgage for a fixer-upper is more complex than a typical home. Standard home loans require a property to meet basic livability standards and if a home needs a lot of work, it may not qualify without specialized financing. Of course, specialized financing comes with higher interest rates and additional fees. Worse, once you get the home appraised, if the value doesn’t match your expectations, your lender might reduce your loan amount or back out.
Then you need to think about renovation loans. FHA 203(k) or Fannie Mae HomeStyle Renovation loans sometimes include the cost of renovations in the mortgage, but require detailed contractor estimates and extra documentation. On top of that, you’ll likely need a bigger down payment, and the credit requirements are often higher.
4. Markets are shifting toward move-in ready homes
While it’s not always smart to blindly follow market trends, there’s a reason markets are shifting away from fixer-uppers and toward move-in ready homes. This shift is being driven by economics and lifestyle preferences. Remodeled homes are currently selling at higher prices because buyers don’t want to deal with the headache and inconvenience of doing all the work. Today’s home buyers want predictability and that’s exactly what move-in ready homes deliver. Younger buyers, like Gen Z and Millennials, especially prefer homes that require minimal work from the start.
5. Older homes can be problematic
Many fixer-uppers are older homes, making them more likely to have serious problems with critical components like the plumbing, electrical wiring, HVAC systems, and the foundation. Some of these issues are easily identified during an inspection, but many won’t be known until you begin renovations.
If you want a smooth first home experience, skip the fixer-uppers
Choosing your first home is about more than just trying to get a good deal. You also need to consider your wellbeing and lifestyle preferences. If fixing homes is your passion, that’s different. But if your goal is to live comfortably, skip the fixer-uppers and opt for a move-in ready home.
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