Want to Buy a Fixer-Upper?

I know there are a lot of you people out looking to buy a fixer-upper, but perhaps don’t have the money right now to fix it up. Here are three solutions to this issue. I’ve even done the third one myself 😉

  • FHA 203K Loan

This one offers the lowest down payment at 3.5% but also has the most restrictions. Renovations that cost over $35K make it extremely difficult to get this loan.

  • Fanny Mae Home Style Loan

This loan hasn’t been as popular in recent times but is likely to be picked a lot more in the coming years for fixer-upper purchases. The minimum down payment here is only 5% but this loan is calculated on the ARV also known as the After Repair Value, which means that you’ll be getting the loan on the value of the renovated property. The primary con to this loan is that you have to hire a contractor and pay them directly out of the escrow amount so there’s not much room for you to cut costs by picking the best deals on items yourself. You’re also restricted to the state Fanny Mae loan limit, which in California is around $768,000 for a single family and around $960,000 for a duplex.

  • Home Equity Line of Credit 

A third option (which I’ve done personally) is to buy a property with a 20% down payment and pulling back out after the close of escrow 10% of that by utilizing a home equity line of credit. You can then use those funds to do a low-cost remodel with complete control over your budgeting. You can then opt for a Rate and Term Refinance provided it’s within the first 6 months of owning the property, and use those funds to pay back the credit. Furthermore, you can even opt to refinance at the appraised value after the first 6 months of ownership, which could mean getting back even more money.

Another little tip would also be to use a credit card for this entire exercise to build up points and take a vacation afterwards! Do leave your thoughts or questions in the comments section below!

As always we are here to help if you need us.

– Joseph Arendsen & True Local Realty Group

Serving San Diego to Oceanside.