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Buying a Home That Needs Renovation

Often times, the image of your dream home is fully formed – a property that’s perfectly ready for you to move in, with updated fixtures, and new appliances, and other bells and whistles that make you swoon. But what if your perfect abode is a diamond in the rough, waiting for the kind of loving care that only you can give to restore it to its former glory, but with an updated eye?

Before you get ahead of yourself and start putting on your amateur architect’s hat, know that your dream of renovating a newly purchased home may depend on your lender. Will lenders give you a loan for your renovation? There are renovation loans available, but first, you have to determine if your lender will sign off on a mortgage for the property you want to renovate. Ultimately, the bank is betting on you and your property by giving you a loan – and if your intended property requires more construction or reconstruction than they’re comfortable with, they might recommend you move along and choose something a little less threadbare.

That doesn’t mean it can’t happen, however. As with any other home, your loan is partially contingent on the inspection and appraisal. If you’re applying for an FHA loan, your appraiser may have to prove that your intended renovation project is a safe and livable space in the meantime. Any issues that deem it anything less than livable will have to be addressed with the seller, which will require a second visit from the appraiser to ensure that the work was done to specifications.

But if your loan is of a more standard genre, your appraisal will look at the home as it stands today. You may have some negotiating room with the seller in terms of who will take care of what repairs, but that’s something addressed on a house by house, or seller by seller, basis. If it’s a hot market, it’s unlikely the seller will be interested in taking care of any fixes for a home they’re no longer going to live in.

You may have more wiggle room if it’s a slower, softer market. If the seller is reluctant to make any cosmetic changes to your specifications but they’re motivated to sell, you may be able to convince the seller to cover your closing costs so you can put your money into fixing your new space. Just know that the percentage of closing costs the seller can cover will be dependent on what kind of loan you have, and in some cases, what your down payment is. 

But if you’re lucky and the sellers agree to make some changes to make way for your sale, you’ll have to make sure they take care of everything – and pay for it – before closing. Usually buyers will push for a cheaper price in order to handle the fixes themselves – that way, everything is done to their particular specifications. But you never know what the seller might be game for, depending on how badly they want to sell.

As with anything, confer with your real estate team to come up with a solid game plan. Purchasing a fixer-upper isn’t impossible, but it can take some coordination that other homes don’t. Even so, you just might wind up with a perfectly personalized space made just for you.

What could your mortgage look like?

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