Fixer Uppers vs. Move-In Ready Homes
Move-in Ready Homes
There are two main reasons you’d need to buy a place that is ready for you to move in.
FHA (Federal Housing Administration) loan restrictions
Basically, you can’t buy a true fixer-upper with an FHA loan. There are provisions that exist to protect buyers — this means under an FHA loan, you can’t get “taken” by a seller who’s trying to offload a house with tons of problems.
FHA mortgages are ideal for buyers who can’t afford the traditional 20-30% down payment. FHA requires an average of 3-5% down.
The drawback here is PMI— private mortgage insurance. This is a fee that will be built into your monthly payment that won’t go away until you’ve accrued 20% equity in your house.
Because of the way amortization works, very little of your monthly payments actually go toward building equity into your house by paying against the principle. These payments early on are heavily weighted toward paying the interest on your mortgage.
So think of it this way. Your PMI is around $100 per month. That’s probably going to last 5 years at least. So, you’re paying an extra $6000 in PMI on top of the cost of your house and on top of the interest — for the privilege of acquiring the debt associated with home buying.
Before you write it off all together, there’s an upside to PMI — it works like term life insurance. In the event that the borrower passes away, the PMI will pay off the debt on the house. So PMI isn’t all bad! It’s just something to be aware of when calculating the costs of home ownership.
You may not want to fix up a house that needs renovations.
TV shows make it look easy and glamorous, but that’s not reality. Sure, if you have time, resources, skills and, of course — money, you can do it. The truth is this — if you’re already time-poor because of work commitments, how much time will you then have to work on your home? Understanding your own limitations, it may be a better option to buy a house that’s move-in ready. And whether you choose a traditional mortgage or an FHA, you won’t have to worry about the mess and hassle of renovating to move in.
Are you frugal and handy? Maybe a fixer upper is the way to go for you. Lots of old, run-down houses are on the market for a fraction of the cost of move-in ready homes. This is definitely a pro for someone who’s looking for a budget home, can afford a traditional mortgage plus the down payment and has the financial capacity to renovate a house.
Whether you DIY or hire a contractor, renovations take time and money. Fixer Uppers, therefore, aren’t for people who need to move quickly and get settled. But again, if you’re a single person who doesn’t mind the mess or if you’re a family of super handy people, maybe this is a viable option.
There is also the possibility that the home has enough useable space that is good enough to move in and do the rest of the repairs over time. You need a workable bathroom, a functional kitchen, and a place for everyone to sleep, even if it is not ideal. At least it might be a place to live, uncomfortably, while you do the rest.
It’s just important to understand what you’re getting into. A lot of people bite off more than they can chew when starting a home DIY project. This can result in good intentions turning into a financial disaster. Do a quick search of the homes for sale in your area. Chances are, there’s an in-progress renovation that went back on the market. The seller just couldn’t manage it to completion, so they decided to cut their losses and move on. This isn’t a great financial move — buying a fixer upper then reselling it before completing the work. It’s an easy way to lose money and create a chaotic situation.
Debt and Buying a Home
While it’s possible to buy a home if you have debt and credit issues, it’s much easier and much less stressful to buy a home once you’re in a good financial place. Today’s market has changed since the mortgage and lending crisis of 2008 that signaled the Recession. If you’re currently behind on any of your bills, this isn’t the time to apply for loans — of any kind.
Now is the time to talk to someone about your debt and credit issues. At CreditGUARD, we can help you rehab your financial situation much faster than payday lenders and consolidation loans. As a matter of fact, our non profit debt management program doesn’t involve a single new loan or debt.
We negotiate with your creditors to stop collections calls, save you money on interest and get you out of debt faster. All you pay is one easy monthly amount and we do the rest.
Get your financial house in order BEFORE you buy a home, not after.
Call CreditGUARD today at 800-500-6489 to speak to a certified credit counselor who can help you take the next step toward financial freedom!
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