Fixer-Upper Issues that Might Affect Home Loan Approval
Have you ever felt the joy of finding the perfect home, only to discover that there is a lot of work to be done? If you are considering a fixer-upper because you have fallen in love with a home or if you are thinking of fixing an older house because it could allow you into the neighborhood where you want to live, what are the hidden costs of fixer-upper homes for sale? You could not only be on the hook for your renovation costs, but choosing a fixer-upper could also affect your home loan approval.
The Benefits and Drawbacks of Buying a Fixer-Upper
It is the best house in the neighborhood, except for the roof. It is a beautiful home, except for the chipping, peeling paint. There can be huge benefits to buying a home that needs some work.
- If you are looking at a neighborhood that is ideal for your family, but the housing prices are less than ideal, buying a fixer-upper can get you into that neighborhood.
- You can add value to a home. If there are cosmetic problems that do not cost much to fix, you could add a lot of beauty, enjoyment, and value just by making simple changes.
- You have the opportunity to save for renovations. If you are buying under your price range, you can use that extra money to turn your home into the home that you want, not the home that someone else renovated.
However, like any home purchase, there are drawbacks to your choice.
- You are moving into a project. You are not moving into a finished product. It will take time and effort to make your home the right one for you.
- Costs can spiral out of control. If your contractor does not come through, materials get more expensive, or you find more problems, you can find yourself with a very expensive home.
- Finally, you can have trouble securing financing, either for your home or for your renovations.
Many Factors Affect Home Loan Approval
When you are looking for a loan so that you can buy a home, lenders do not want to lend you that money if you or the home are not a good investment. You know that you need to have sound credit and an adequate downpayment. However, the mortgage company or other lender also needs to feel confidence in the structure itself. If the following statements apply to your prospective home, you might need to plan mitigation measures or your home purchase could take a longer time than usual:
- A leaky roof can compromise the integrity of a home. You may need to work repairs into the home sale to get a loan. Often, your loan approval will be dependent on completing repairs to the satisfaction of an appraiser.
- Health and safety concerns such as an open subfloor or exposed wiring can torpedo your loan chances. These can occur in very damaged homes or in homes that were undergoing a renovation that stopped for some reason. If there are health and safety concerns, your lender will generally need to see that they are repaired before making the loan.
- Problems with the heating and cooling system can stop or delay the loan process. Can the home stay at a reasonable temperature? If not, expect a delay in loan approval until the problem is fixed.
- Dangers to the structure of the home such as carpenter ants or termites make the home less sound and also less likely to pass inspection for loan approval.
Your loan approval also depends on the type of loan you are using. Programs such as the VA Loan program have slightly different requirements. The VA requires that homes be “move-in ready” with minimal repairs or work necessary before a loan can close.
What Can You Do to Successfully Purchase Fixer-Upper Homes for Sale?
If you love to change old houses into beautiful homes or you have just fallen for a fixer-upper, you do not need to despair about getting a home loan. It is possible, but you may need to work through a few hoops before you get the home that you want.
- Consider your budget for completing these repairs so that a sale can go through. Often, the buyer is the one who pays for these repairs.
- Negotiate with the sellers to see if they are willing to contribute to the home repairs or lower the price.
- Talk with the agents to see if they can provide assistance or discounts.
At Open for Homes, we are here to provide you with the information you need to make an informed decision about your home purchase. Visit the blog at Open For Homes and learn more about your home buying options.