Purchasing a restored home may mean a larger upfront expense and greater monthly mortgage payment.
Should I Buy a Fixer-Upper or a Move-In-Ready Home?
Do renovation and repair costs make the attractive price of fixer-uppers out of reach?
Sue Lee | Relationship Manager
First Republic Bank
3 min read
If you’re in the market for a new-to-you home, you’ve likely already realized that choosing between a move-in ready home or a fixer-upper is all about finding a happy balance between your own unique personal needs, wants and resources.
Ask yourself the following seven questions to help ensure the decision you make is the best possible one for yourself, your family and your future.
How much can I afford to spend?
The typical rule of thumb for most mortgage borrowers is to maintain a payment that is below 30 percent of your monthly gross income. Discovering a diamond in the rough may create an opportunity to live in a neighborhood that would otherwise be out of reach but be sure to account for the fullest array of foreseeable expenditures as you nail down an overall budget, including down payment, closing costs and legal fees.
What kind of work does my potential new home need?
Renovations on a house that is out-of-date but structurally sound can be easier and less expensive to complete than work on a home in need of a foundation upgrade, an electrical or plumbing overhaul or extensive roof repairs. The scale of the project won’t become apparent until you’ve vetted the property with a qualified home inspector, so try not to fall in love with a potential new home until after you’ve completed this process.
Am I comfortable with the estimated renovation price tag and any potential overages?
After you’ve reviewed the results of the home inspection report, ask an architect or general contractor for an estimate of the home’s remodeling and repair costs. Don’t simply accept the first estimate: Proposals and charges can vary widely among contractors, many of whom are only all too happy to meet or beat a competitor’s estimate. Depending on the tightness of your renovation budget, add five to 20 percent to that estimate. Home renovations have a way of expanding in scope and unforeseen problems and expenses often crop up.
How do my top choices fare in a cost-benefit analysis?
In many cases, the price of a fixer-upper will be substantially less than the cost of a similarly situated move-in ready home. Still, the cost of renovations can easily outstrip any upfront savings — particularly if you haven’t carefully considered the costs associated with the work that needs to be done. Consider the cost of your fixer-upper plus renovations and repairs and then compare that to the cost of fully renovated homes in the same neighborhood with similar square footage and features.
What is my family’s appetite for disruption?
Whether you decide to complete renovations before or after you move-in, it can be difficult on your family to delay moving into their new home. Living amidst contractors and construction crews can add a not-insubstantial additional layer of stress to everyday life. Some home owners will, of course, be more affected than others, but it’s worth considering whether the savings you’d realize by choosing a fixer-upper are worth dealing with the inevitable disruption of a renovation.
How “custom” do I want my home to be?
There’s something amazing about living in a home remodeled to your specifications. If you expect you’d likely change the kitchen or molding to suit your tastes anyway, it may not make sense to pay the premium to purchase the move-in ready home. Then there’s the craftsmanship: Not all contractors are created equal. If you’re researching and hiring your own experts, you’ll have the ability to vet your workers, making sure that corners aren’t cut and that craftsmanship is on point, and the level of detail is where you’d prefer it.
Still, some renovations create more value than others. Kitchen and basement updates, for example, increase a home’s value as well as its livability. So do "invisible upgrades" such as the addition of attic insulation or new windows. On the other side of the ledger, new decks and bathroom additions add far less value than you might expect. Try to get an understanding of how the upgrades you select — or that were already pre-selected by the builder — could potentially increase both your satisfaction as a home owner as well as the financial value of the home.
How will this purchase affect my other financial goals?
Although some homebuyers may find it easier — both financially and emotionally — to purchase a restored home, it may mean a larger upfront expense and greater monthly mortgage payment. On the other hand, those who brave a fixer-upper may also benefit from a decreased mortgage obligation, giving a buyer the power to simultaneously pursue other financial goals.
In the end, it is important to remember that whichever path you ultimately choose, purchasing a new home — whether already renovated or awaiting a bit of your own flair and TLC — is a milestone moment in one’s life. Consider your options as fully as possible, then embrace the adventure.