A: We’re seeing prices rise. The National Association of Realtors says prices rose 23.6% from May 2020 to May 2021. This low inventory has been out there as an issue since the financial crisis of 2008. We haven’t really been adding a lot of inventory.
Q: What types of loans are available for renovations?
A: Many lenders have an FHA 203(k) loan that allows people to buy a fixer-upper. If it’s a smaller amount, you can do the old tried-and-true credit card balance — but you also need to understand what that means from an interest-rate perspective.
If you already own the home, a home equity loan is an option. Many home equity loans will go up to a 90% loan-to-value ratio. And with interest rates where they are today, if you didn’t refinance in the last year and a half, it might make sense to go ahead and do a cash-out refinance.
Q: What advice do you give a first-time buyer considering a fixer-upper?
A: First and foremost, be part of the inspection process. Buyers don’t always take this seriously. Maybe they hang out in the living room while the inspector makes his rounds. You should become attached at the hip. Really look at the inspector as a person to go around with and learn about the property.
Also, a great way to buy a house is to put in a lot of sweat equity. If you can do a lot of work yourself, you can potentially save a lot of money.
There’s the potential of discovering additional issues, so be cognizant of cost overruns.
Lumber prices have been going up, so buyers should be prepared for and thoughtful about cost increases.
Q: What’s a common mistake made by buyers of fixer-uppers?
A: The biggest and most hurtful mistake is underestimating the cost of your renovation. No matter how well you think you estimate, there are always surprises. You have to assume that there are going to be cost overruns. It’s better to go into it anticipating that. Probably in the back of your mind you should be thinking of a 15-20% cost overrun.