Facts About Fixers

It’s fairly common, especially now that prices are high, that REALTORS® receive calls from buyers looking for bargains in the form of a “fixer-upper.” Some buyers think accepting a fixer-upper might provide a much-needed price break while others are looking for something to improve through sweat equity.

Financing Challenges With Fixer-Uppers

Keep in mind that trying to buy a “fixer” using OPM (Other People’s Money) is not a simple process. Fact is, buying such a property with no money down is virtually impossible. Just like the auto lender who wants assurance that a car runs before they loan on it, home lenders want to be sure a house can really “house”.

Buying a fixer involves much more than just the willingness to make repairs. Remember, the two components of a loan are buyer strength and collateral (the property). Loans with little or no money down are highly scrutinized by underwriters who must cautiously assess the lender’s exposure. Lenders don’t want to be stuck with a property that will bring far less than owed at a foreclosure sale. This is the exact situation when a home needs major repairs.

Repairs and Renovations

These days, even a healthy down payment and good credit aren’t enough. Those lucky enough to find a lender willing to accept a challenged property can expect that a licensed general contractor will be required for renovations. A construction loan may be required. An FHA Section 235 loan (3.5% down payment) or a conventional rehab loan may allow a buyer with verifiable experience to do the work themselves. It’s not an easy process and one requiring a very patient seller (not many of those these days).

It may be possible to have some repairs done prior to recordation. Look around for a contractor who will agree to be paid out of the seller’s proceeds. An appraiser is normally required to certify completion of repairs. There is an additional charge for this. It is difficult to get lenders to agree to repairs after closing. In fact, withholding money for any reason is a major issue.

Consider Alternatives and Adjust Expectations

Those short on patience and weak in the pocket are well advised to consider other options. Remember, get started however you can. Adjust expectations of location, house or land size but not property condition. Today’s buyers no longer consider their home purchase a forever commitment. Start small and work your way up. Until then, remember to “Keep the Faith”! Congratulations to Faith Makanalani Kraus, who will soon join Team Nakanishi as a member of our sales team!