How to Buy a Fixer Upper House

Fixer-upper houses can require minor cosmetic changes or construction.

Purchasing a home is an exciting endeavor full of unexpected incidents. Buying a fixer-upper home presents even more unique challenges because the home normally requires major repairs. Typically, these homes cost less than comparable properties in the immediate area. However, once complete, the home's value should increase because of the repairs and renovations. Researching a home purchase greatly reduces the inherent stress of purchasing real estate. To buy a fixer-upper house, you must secure financing, conduct research, create a plan and complete the closing process.

Instructions

1. Determine the type of project that interests you. Purchasing a fixer-upper house requires time, money and patience. Many people underestimate the amount of work required to complete the project. For example, a house with structural problems can cost thousands of dollars to repair. Conversely, you can rehabilitate a home that needs cosmetic attention using your own time and skills or by contacting a contractor. Fixer-upper homes run the range in repair level and funds required. Make sure you select a home that meets your budget, time period and level of skill, patience and risk.

2. Secure financing. Rehabilitation financing is different from a typical mortgage. In addition to the monthly mortgage payment, you may require a construction loan depending on the extent of the work required. According to BankRate, several products exist for financing a renovation including the Federal Housing Administration's (FHA) 203(k) and Fannie Mae's HomeStyle Renovation Mortgage. You can also contact private lenders to inquire about their renovation mortgage products. This type of financing allows you to "finance the mortgage and the construction work in one shot," reports Bankrate. Contact the FHA, Fannie Mae and private lenders for additional information.

3. Search for a suitable property. Consider the location, schools and area amenities. Use a combination of search sources including online Realtor databases, classified advertisements, foreclosure listings and neighborhood scouting. Consider working with a real estate agent who specializes in rehabilitation projects to expand your search.

4. Request a disclosure. Once you locate a suitable property that requires rehabilitation within your budget, request a disclosure from the seller. A disclosure document lists problems of which the seller is aware. The disclosure can assist with estimating construction costs.

5. Make an offer. You make an offer on a home by completing and signing a contract. Have an attorney or your real estate agent review the contract. Make sure you understand, in detail, contract terms, conditions and requirements.

6. Have the property inspected by a professional. The inspection process can reveal additional problems of which the owner may be unaware. Inspection costs can range anywhere from $350 to $400. Accompany the inspector during the inspection process to ask questions or resolve concerns. Contact the International Association of Certified House Inspectors or the American Society of Home Inspectors to locate a certified inspector.

7. Complete the purchase. If the seller accepts your offer, she signs the contract. The closing process includes the completion of paperwork at an attorney or title company's office. At closing, your down payment and closing costs are distributed, and you receive the keys to your new property.

References

• BankRate: Financing a fixer-upper
• MichaelBlueJay: Basics of Buying a House
• MichaelBlueJay: Choose a House and Get the Disclosure

Resources

• American Society of Home Inspectors
• International Association of Certified House Inspectors
• REALTOR
• Rehab a Home w/HUD's 203(k)
• HomeStyle Renovation Mortgage