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How to Assess the Real Cost of a Fixer-Upper House

How to Assess the Real Cost of a Fixer-Upper House

by | Jan 15, 2015 | Buying

When you buy a fixer-upper house, you can save a ton of money, or get yourself in a financial fix.

Trying to decide whether to buy a fixer-upper house? Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.

1.  Decide what you can do yourself.

TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house.

  • Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.
  • Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

2.  Price the cost of repairs and remodeling before you make an offer.

  • Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do.
  • If you’re doing the work yourself, price the supplies.
  • Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

3.  Check permit costs.

  • Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it’ll cause problems when you resell your home.
  • Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.
  • Factor the time and aggravation of permits into your plans.

4.  Doublecheck pricing on structural work.

If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems.

Get written estimates for repairs before you commit to buying a home with structural issues.

Don’t purchase a home that needs major structural work unless:

  • You’re getting it at a steep discount
  • You’re sure you’ve uncovered the extent of the problem
  • You know the problem can be fixed
  • You have a binding written estimate for the repairs

5.  Check the cost of financing.

Be sure you have enough money for a downpayment, closing costs, and repairs without draining your savings.

If you’re planning to fund the repairs with a home equity or home improvement loan:

  • Get yourself pre-approved for both loans before you make an offer.
  • Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you’re not forced to close the sale when you have no loan to fix the house.
  • Consider the Federal Housing Administration’s Section 203(k) program, which is designed to help home owners who are purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans. A streamlined 203(k) program provides an additional amount for rehabilitation, up to $35,000, on top of an existing mortgage. It’s a simpler process than obtaining the standard 203(k).

6.  Calculate your fair purchase offer.

Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.

For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.

Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.

The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.

Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair.

7.  Include inspection contingencies in your offer.

Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:

  • Home inspection. This is key in a fixer-upper assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1970s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.
  • Radon, mold, lead-based paint
  • Septic and well
  • Pest

Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.

If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.

More from HouseLogic

What you need to know about foundation repairs

Budgeting for a home remodel

Tips on hiring a contractor

G.M. Filisko is an attorney and award-winning writer whose parents bought and renovated a fixer-upper when she was a teen. A regular contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

 

By: G. M. Filisko:© Copyright 2015 NATIONAL ASSOCIATION OF REALTORS®

 

7 Steps to Take Before You Buy a Home

7 Steps to Take Before You Buy a Home

by | Jan 15, 2015 | Buying

By doing your homework before you buy, you’ll feel more content about your new home.

Most potential homebuyers are a smidge daunted by the fact that they’re about to agree to a hefty mortgage that they’ll be paying for the next few decades. The best way to relieve that anxiety is to be confident you’re purchasing the best home at a price you can afford with the most favorable financing. These seven steps will help you make smart decisions about your biggest purchase.

1.  Decide how much home you can afford.

Generally, you can afford a home priced two to three times your gross income. Remember to consider costs every homeowner must cover: property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care if you plan to have children.

2.  Develop your home wish list.

Be honest about which features you must have and which you’d like to have. Handicap accessibility for an aging parent or special needs child is a must. Granite countertops and stainless steel appliances are in the bonus category. Come up with your top five must-haves and top five wants to help you focus your search and make a logical, rather than emotional, choice when home shopping.

3.  Select where you want to live.

Make a list of your top five community priorities, such as commute time, schools, and recreational facilities. Ask your REALTOR® to help you identify three to four target neighborhoods based on your priorities.

4.  Start saving.

Have you saved enough money to qualify for a mortgage and cover your downpayment? Ideally, you should have 20% of the purchase price set aside for a downpayment, but some lenders allow as little as 5% down. A small downpayment preserves your savings for emergencies.

However, the lower your downpayment, the higher the loan amount you’ll need to qualify for, and if you still qualify, the higher your monthly payment. Your downpayment size can also influence your interest rate and the type of loan you can get.

Finally, if your downpayment is less than 20%, you’ll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment. Check with your state and local government for mortgage and downpayment assistance programs for first-time buyers.

5.  Ask about all the costs before you sign.

A downpayment is just one homebuying cost. Your REALTOR® can tell you what other costs buyers commonly pay in your area — including home inspections, attorneys’ fees, and transfer fees of 2% to 7% of the home price. Tally up the extras you’ll also want to buy after you move-in, such as window coverings and patio furniture for your new yard.

6.  Get your credit in order.

A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. The minimum credit score you can have to qualify for a loan depends on many factors, including the size of your downpayment. Talk to a REALTOR® or lender about your particular circumstance.

You’re entitled to free copies of your credit reports annually from the major credit bureaus: Equifax, Experian, and TransUnion. Order and then pore over them to ensure the information is accurate, and try to correct any errors before you buy. If your credit score isn’t up to snuff, the easiest ways to improve it are to pay every bill on time and pay down high credit card debt.

7.  Get prequalified.

Meet with a lender to get a prequalification letter that says how much house you’re qualified to buy. Start gathering the paperwork your lender says it needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.

If you’re self-employed, you’ll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.

Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage (ARM) offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.

 

By: G. M. Filisko:© Copyright 2015 NATIONAL ASSOCIATION OF REALTORS®

 

8 Tips for Finding Your New Home

8 Tips for Finding Your New Home

by | Jan 15, 2015 | Buying, Homeownership

A solid game plan can help you narrow your home buying search to find the best home for you.

House hunting is just like any other shopping expedition. If you identify exactly what you want and do some research, you’ll zoom in on the home you want at the best price. These eight tips will guide you through a smart home buying process.

1.  Know thyself.

Understand the type of home that suits your personality. Do you prefer a new or existing home? A ranch or a multistory home? If you’re leaning toward a fixer-upper, are you truly handy, or will you need to budget for contractors?

2.  Research before you look.

List the features you most want in a home and identify which are necessities and which are extras. Identify three to four neighborhoods you’d like to live in based on commute time, schools, recreation, crime, and price. Then hop onto REALTOR.com to get a feel for the homes available in your price range in your favorite neighborhoods. Use the results to prioritize your wants and needs so you can add in and weed out properties from the inventory you’d like to view.

3.  Get your finances in order.

Generally, lenders say you can afford a home priced two to three times your gross income. Create a budget so you know how much you’re comfortable spending each month on housing. Don’t wait until you’ve found a home and made an offer to investigate financing.

Gather your financial records and meet with a lender to get a prequalification letter spelling out how much you’re eligible to borrow. The lender won’t necessarily consider the extra fees you’ll pay when you purchase or your plans to begin a family or purchase a new car, so shop in a price range you’re comfortable with. Also, presenting an offer contingent on financing will make your bid less attractive to sellers.

4.  Set a moving timeline.

Do you have blemishes on your credit that will take time to clear up? If you already own, have you sold your current home? If not, you’ll need to factor in the time needed to sell. If you rent, when is your lease up? Do you expect interest rates to jump anytime soon? All these factors will affect your buying, closing, and moving timelines.

5.  Think long term.

Your future plans may dictate the type of home you’ll buy. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in the home for five to 10 years? With a starter, you may need to adjust your expectations. If you plan to nest, be sure your priority list helps you identify a home you’ll still love years from now.

6.  Work with a REALTOR®.

Ask people you trust for referrals to a real estate professional they trust. Interview agents to determine which have expertise in the neighborhoods and type of homes you’re interested in. Because home buying triggers many emotions, consider whether an agent’s style meshes with your personality.

Also ask if the agent specializes in buyer representation. Unlike listing agents, whose first duty is to the seller, buyers’ reps work only for you even though they’re typically paid by the seller. Finally, check whether agents are REALTORS®, which means they’re members of the NATIONAL ASSOCIATION OF REALTORS®. NAR has been a champion of home ownership rights for more than a century.

7.  Be realistic.

It’s OK to be picky about the home and neighborhood you want, but don’t be close-minded, unrealistic, or blinded by minor imperfections. If you insist on living in a cul-de-sac, you may miss out on great homes on streets that are just as quiet and secluded.

On the flip side, don’t be so swayed by a “wow” feature that you forget about other issues — like noise levels — that can have a big impact on your quality of life. Use your priority list to evaluate each property, remembering there’s no such thing as the perfect home.

8.  Limit the opinions you solicit.

It’s natural to seek reassurance when making a big financial decision. But you know that saying about too many cooks in the kitchen. If you need a second opinion, select one or two people. But remain true to your list of wants and needs so the final decision is based on criteria you’ve identified as important.

More from HouseLogic

  • HOAs: What You Need to Know About Rules
  • A Financial Plan for Your Home
  • When It Pays to Do It Yourself


G.M. Filisko is an attorney and award-winning writer who has found happiness in a brownstone in a historic Chicago neighborhood. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

 

By: G. M. Filisko:© Copyright 2015 NATIONAL ASSOCIATION OF REALTORS®

 

Kids’ Rooms: Storage Solutions for Every Age

Kids’ Rooms: Storage Solutions for Every Age

by | Jan 13, 2015 | Homeownership, renovations

From babies who adore you to teens who ignore you, kids change — and so do their storage needs. Here’s how to organize kids’ rooms from cradle to college.

Cradle Crawlers

Transformer cribs. An ordinary crib accommodates baby for two to three years — until he learns how to escape over the rail. Boost storage with a convertible crib with storage drawers ($145 to $350) that’ll convert and adapt to your toddler’s needs and beyond.

Some convertible cribs change into toddler beds, daybeds, or full-size headboards, giving you options as your youngster gets older. If you can’t find a crib with storage below, use the space between the legs for stowing bins or baskets for diapers, toys, and more.

Pimping the closet. Remove the door on the nursery closet for easy access, and install a variety of cool storage features. Drawers, bins, and shelves can round up onesies, booties, baby towels, diapers, and toiletries. A simple wire rack storage system is $90 to $350 at home improvement centers.

Install lower rods so baby, as he grows, can easily latch onto duds (and maybe even hang them up). Expandable hangers ($14 for a 3-pack) fit tiny baby clothes but open up to accommodate larger sizes when needed.

Toddlers and Elementary Age

Look ‘em in the eye. Stow books and puzzles on a low magazine rack or shelving unit so toddlers and elementary-age children can grab a good read or brain teaser on a whim. As children grow, paint the shelf to suit changing tastes and use it for teen magazines, framed photos, and school books.

Cornering the market. Young kids love nooks, so create a cozy hideaway by arranging storage units — open shelves, a desk top, and cabinets — so they (mostly) enclose one corner of your kid’s room. Bookshelves and kids’ desks range from $50 to $200.

Stock up with plenty of games, books, toys, and crafts supplies. Paint cabinet doors with blackboard paint to add an eye-level creative opportunity.

Corral the bling. Little girls often possess a cartload of hair ribbons, barrettes, and bows. Look for special organizers that keep them on display, orderly, and within easy reach. One option: Sort items into the pockets of a clear vinyl shoe holder ($10) that fits on the back of the door.

Tweens, Teens, and Beyond

A magnetic personality. A bulletin board is a great way for your tween or teen to organize and display all those photos of friends and Fido. Or, coat a vertical surface (such as a closet door) with magnetizing primer ($25/quart) and paint over the primer with a hip color. Use assorted magnets and magnetic clips and holders to display artwork, sports schedules, and homework reminders.

Making a (book)case. A bookcase headboard ($100 to $200) is a grown-up way for your teen or college student to keep reading materials organized and the tablet reader handy. Platform storage beneath the bed provides room for drawers or cubbies that can hold baskets and bins for corralling small stuff.

Explore the shallows. Commandeer space between wall studs and create a shallow storage niche outfitted with hooks, shelves, or rods for organizing jewelry and other smallish gear. Add a mirrored door to keep clutter out of sight.

Lofty ambitions. For a small bedroom, a loft-style bed offers a fun spot for snoozing and space below for bookcase storage, a futon, or a study desk. Loft beds for kids’ rooms start at $150 and range to $3,000 or more.

Keep rolling. Give your tween or teen a rolling caddy ($25 to $80) for storing personal bath supplies, jewelry, cosmetics, and hair gear. The caddy stores in the bedroom and rolls to a nearby bath and back.

Related: 8 Small Space Solutions to Shared Kids’ Rooms

 

 

By: Jan Soults Walker:© Copyright 2015 NATIONAL ASSOCIATION OF REALTORS®

 

Small Home Storage: Maximize Your Storage Space

Small Home Storage: Maximize Your Storage Space

by | Jan 13, 2015 | Homeownership, renovations

Your small home has more storage space than you think. For relatively little money but a lot of common sense and ingenuity, there’s space to be found.

Finding storage space in a small home doesn’t require remodeling or room additions. Start by getting rid of accumulated stuff. Take a hard look at room space, and buy furniture and storage items that can do double duty.

Here are six tips to maximize storage that won’t empty your savings account:

1.  Declutter. It’s the first thing architect Sarah Susanka of “Not So Big House” tells clients who talk of expanding their homes. Haven’t used something for a couple of years? Pitch it, she says. You’ll be amazed at how much space opens up when you do.

Cost: $0

2.  Platform and bunk beds. Add space and eliminate a dresser in a small bedroom with a three-drawer or six-drawer platform bed. Find one at a furniture or big department store, and online.

Cost: $225 to $600 and up, queen size

Bunk beds won’t have drawers, but you’ll save space by stacking beds. And kids love ‘em. They come in a variety of styles and configurations. Some will convert to two twin beds.

Cost: $180 to $400 and up

3.  Shoe organizers. They’re for so much more than just shoes. Hang one in a kitchen closet or pantry, and use it as your small home catch-all for remotes, keys, notepads, cell phones, and chargers, and other household essentials. It’ll free up a kitchen drawer or two for other uses.

Cost: Less than $20

4.  Toe-kick storage. The space under your kitchen cabinets is a treasure trove of storage possibilities. Put placemats, napkins, cookie sheets, and how-to manuals there. Hire a cabinet-maker to install them, or request them as a custom feature in a new-cabinet order.

Cost: About $300 per drawer

5.  Floor-to-ceiling storage. Furniture-style 6-foot-tall bookcases don’t use all available wall space. But extend shelving that extra two feet to the ceiling, and you’ve got room for a lot more books, knickknacks, or art objects. Home improvement stores have brackets and shelves in a variety of colors and sizes to match your décor.

Cost: Under $200, depending on the space size

Related: More Ideas for Small Homes

By: Terry Sheridan:© Copyright 2015 NATIONAL ASSOCIATION OF REALTORS®

 

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