getting a home loan for a fixer upper

First Time Home Buyer

Getting a Home Loan for a Fixer-Upper: Important Considerations

As mortgage professionals, we understand the appeal of buying a fixer-upper home. It can be truly amazing to see your vision come to life as you make changes and updates to your home. However, obtaining financing for a home needing repairs or improvements requires careful thought. In this article, we will guide you through key considerations around getting a home loan for a property that’s a fixer upper.


Financing a Fixer-Upper: What to Expect

Fixer-upper loans, also called renovation loans, allow buyers to finance both the purchase and planned repairs of a home needing updates. These specialized mortgages provide funds to buy a property and improve it so that the buyer doesn’t have to use cash for the repairs. Typically, loan amounts are based on the expected value of the home after renovations. There are different types of renovation loans that buyers can apply for, so it’s important to understand the qualifications and requirements for each option.


Applying for a Renovation Loan: Important Considerations

Buying a fixer-upper home can be incredibly rewarding and a great financial investment if you go about, it the right way. With that being said, it’s important to have realistic expectations and be aware of the process ahead. Most likely, to secure a loan for the property, you’ll have to put in some extra effort. Here are some of the most important factors to consider when getting a home loan for a fixer-upper:

  • Repair Costs – You may be required to get estimates on all repairs needed for the home. You should also factor in potential cost overruns and consider setting aside a contingency fund. High repair costs may impact your loan eligibility.
  • Appraised Value – The appraised value of the home in its current state can affect your loan-to-value ratio. In some cases, borrowers may have to make a larger down payment.
  • Renovation Loans – Programs like FHA 203(k) loans tend to suit renovation projects better than standard mortgages. Ask your lender about the different programs available to you.
  • Scope of Work – Your lender may require details about the scope of work that needs to be completed, including contractor information and project timelines. 
  • Contractor Qualifications – If you’re applying for a renovation-specific loan program, your contractor may have to meet certain requirements in terms of licensing and experience. 
  • Disbursement of Funds – In most cases, funds are dispersed in phases after the home inspection is complete. Rather than expecting all the funds upfront, you should plan accordingly.


We’re Here to Help

If you have questions about getting a home loan, just remember, we’re only one call away. Contact our office today to discuss your plans with a mortgage professional.