We recently worked with a couple who just couldn’t find a house for sale in Madison that fits their needs. We looked for months, one house after the other, but none of the floor plans were just right.
I finally suggested we look at fixer uppers, otherwise known as "fixers" in the Madison market. This is a scary suggestion for many homebuyers who instantly get visions of beater houses dancing in their heads. My clients, on the other hand, were at the point where they were more than willing to entertain the suggestion, especially after I explained to them how they could finance the purchase and end up with the home of their dreams.
Like my clients, you may not know just how easy it is to get a loan for a fixer and, if you get the right loan, it will wrap the cost of the rehab work into the mortgage. You’ll get more house for the money and you can customize it to your tastes and lifestyle.
The advantages of buying a fixer
Sure, they don’t look like much when you first view them, but you need to look at these homes with a different eye. Imagine the homes’ possibilities and advantages. The biggest of these is their eventual resale value. Here are a couple of other advantages to think about:
- Because fixers cost less to purchase than surrounding homes, buying a house in need of repairs may allow you to purchase in a better neighborhood than you might otherwise afford. This means better schools and a higher resale value.
- Since the value of fixers are much less than homes that don’t need work, and because the buyer pool is significantly smaller, sellers of these homes are often more willing to negotiate on price as well.
- As mentioned above, you won’t need to conform to a home that has fewer features than what you need – you can make the house conform to you!
Loans for fixers in Madison
One of the easiest ways to pay for the rehab of a fixer is with FHA’s 203(k) program. No, this isn’t the only loan of its kind, but it’s pretty amazing and it’s provided by the U.S. Department of Housing and Urban Development (HUD).
It’s basically an FHA-backed loan that allows for both the cost of the home plus the amount needed to rehab it – all rolled into one monthly payment. One of the biggest advantages to the FHA 203(k) program is that you won’t be required to make your first mortgage payment until you are actually living in the home. Like any government program there are lots of qualification guidelines – for both the house and the borrower, but they aren’t daunting.
Let’s run through some of the basics:
- The home must be at least one-year old. I shudder to think of what kind of builder constructs a home that’s considered a fixer when it’s less than 1-year old, don’t you?
- If the home is to be demolished you must be able to salvage the existing foundation.
- The value of the home, when rehabbed, must conform to the FHA mortgage limit for Madison.
- FHA values the property either by its value before the rehab plus the cost of the rehab, or at 110 percent of the appraised value of the property after rehabilitation, whichever is less.
What you need to do to qualify
If you qualify for an FHA loan, you’ll qualify for the 203(k) program. You must also use an FHA-approved lender. HUD has a list of them on its website.
Remember, FHA doesn’t loan money, it merely offers a guaranty, so the lender may have stricter requirements. I’m happy to talk fixers with you – it may just be the perfect way to get your perfect home.