Can You Afford to Buy a Fixer-Upper? | South Salem Real Estate

Many homebuyers are drawn to the lure of the fixer-upper. And with good reason, at least on paper.

But the “buy low, sell high” ethos of fixer-uppers isn’t exactly a guarantee. There are plenty of people who snagged the worst house in a great neighborhood and turned it into their dream home. You’re just as likely to find overworked and overspent homeowners ready to run from their money pits.

Committing to a fixer-upper is a big decision, one that can impact your financial picture for years to come. Before you start swinging a hammer, you’ll first need to find a way to finance your purchase.

You may need a specialized mortgage product to buy a fixer-upper. Some lenders and loan types want properties in “move-in ready” condition, which can obviously pose a problem.

Here are a few options to consider.

FHA 203k

The Federal Housing Administration offers a government-backed rehab loan that allows buyers to finance renovations based on the property’s projected value. There are two distinct types of 203k loans: a streamline version and the standard.

Buyers using the streamline option can add up to $35,000 to their loan to make non-structural repairs, like new carpet, paint or even a kitchen remodel. The standard 203k loan gives borrowers more leeway in terms of how much they can borrow and how they can use the money.

Repairs must be completed within six months. Homebuyers can also finance up to six months’ worth of mortgage payments, a bonus that can help cover costs if you need to live elsewhere during the renovation.

The FHA 203k loan program can be a great fit for low- and middle-income borrowers. Credit and down payment benchmarks (3.5%) are lower for FHA loans. But there are also some downsides. FHA loans carry costly mortgage insurance and limit borrowers in most parts of the country to a max loan of $271,050.

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http://finance.yahoo.com/news/afford-buy-fixer-upper-090041441.html