First, some good news: If you read my last column about the new mortgage disclosure laws going in to effect on August 1, the Consumer Financial Protection Bureau has delayed the start date to October 1. This means the banks, title companies, Realtors and consumers will get 2 more months to get ready for all the changes.
Are you thinking of buying a “fixer-upper”? Here are some things to consider before putting in an offer. How much of the work can you do yourself? Some of the fixes may be relatively easy like painting, stripping wallpaper and tearing up carpet. Other repairs such as electrical & plumbing take more skill and knowledge. Be honest about your abilities because mistakes can be dangerous and costly to fix. You also need to ask yourself if you have the time to devote to a large remodeling project. Everything takes twice as long as you think it will and living in a construction zone can have it ís own set of challenges.
You will also need to estimate the cost of the repairs needed and add that to the price of the home. If you are using a contractor, have him do a walk through before you make an offer to give you a sense of what needs to be done and how costly it will be. If you are planning on doing the work yourself you will save on labor costs but you will need to price out supplies. Either way you go, tack on an additional 10 to 20% for those surprise costs that always arise in any remodel .
Don’t forget to check with your city to find out if you need permits to do the work on your home. If you are hiring a contractor, he will take care of getting the necessary permits. If you are doing the work yourself, you will need to apply for the permits and schedule the necessary inspections as your remodel progresses. Obtaining the necessary permits and waiting for inspections can cause delays in your time line so don’t forget to factor that in your plans. There may also be home owner ís association restrictions or subdivision covenants and restrictions which may affect what you can do with the property. Check into these before you purchase the home and start any remodeling.
Think twice before your purchase a property that needs structural repairs. These types of repairs can be extremely costly. If you suspect structural problems with a property you are interested in purchasing, have a structural engineer inspect the home and give you a repair estimate before you make an offer. Many times foundation issues can cause other problems which can be very expensive to remedy so make sure you get written, binding estimates from a contractor for these types of repairs.
Include inspection contingencies in your offer. Unless you are a contractor yourself, hire professionals do a thorough inspection before you buy a property. Spending a couple hundred dollars on inspections can save you from a costly mistake by uncovering hidden issues. There may be a leaking pipe behind a wall or asbestos flooring which can be very costly to remove. Don’t forget to have inspections done for mold, radon and pests as well.
If the property has a well and/or septic system make sure those are also inspected. Doing your homework upfront will give you a true picture of the property condition and may save you from buying a money pit.
Now that you have a clear idea of the repairs needed and the time involved in completing them, you will need to decide on the price you are willing to pay for the property. Your Realtor can help you establish a price to offer based on what similar properties have sold for in the same area. Remember that most mortgages only cover the price of the home and not the cost of the remodel. FHA does have a 203k mortgage program which allows buyers to finance the rehab costs into the mortgage. Talk to your lender for more information about that loan program. Once you know the true cost of that fixer upper you can decide if it is worth your time, money and effort or if you should keep looking.