America’s housing stock is old and getting older, and more buyers, priced out of homes that are move-in perfect, are turning to fixer-uppers, which present a more affordable option.
The average age of a house in the U.S. as of 2019 was 39, and 65% of American homes were built before 1989. A recent TD Bank survey of first time U.S. homebuyers found 71% are not looking for their dream home, but rather a starter home or fixer-upper.
But there is at least one obvious caveat to buying a fixer-upper, according to Bankrate.com: Aging structures require more maintenance.
Many of those repairs can be an unexpected surprise after the home has changed owners, but during the homebuying process, buyers should not make the mistake of dismissing the home inspection as just another bit of paperwork.
In fact, buyers should attend the inspection in person if possible and follow the inspector around.
“He’s going to poke around every nook and cranny of the house. As a buyer, you would be wise to, instead of just hanging out in the kitchen or looking at your phone, really follow him around. Just keep an eye on what he’s seeing and what he’s looking for,” said Jeff Ostrowski, mortgage writer at Bankrate, which has done research on the aging housing market.
Nonemergency renovations will increase the value of the home and make it more pleasant for the new owners. But they can come with surprises. Seasoned homeowners know this, but for first time buyers, it is worth repeating. It is an unwritten rule of home renovation that, no matter how thorough the cost estimate seems, there will be unexpected, possibly expensive, new issues discovered during renovation.
For young buyers. there may not be any money left for renovations, with most savings depleted just for the down payment. But there are ways around that too.
There are fixer-upper loan products, such as an FHA 203(k) loan.
“That lets you borrow not against what the purchase price of the house is, but what the value of the house will be in six months or a year after your renovations are done,” Ostrowski said.
Freddie Mac offers lenders a similar product called CHOICERenovation mortgages.
There are potentially other sources of renovation money, such as state and local home improvement programs, historic preservation loans and energy-efficiency incentives.