Fixer Uppers May Be Good for Buyers on a Budget

During the past eight years, fixer uppers were almost exclusively the result of a foreclosure or short sale. People who could no longer afford to pay their mortgages allowed maintenance to lapse; they either didn’t have the money to keep up with property expenses or they knew it wouldn’t be cost effective to spend, say $4,000 on a new roof when the house would go into foreclosure within six months. It was the same rationale for short sales: if the owners of a property knew they would have to sell the home for less than they owed on it, it made little sense to invest any more money to maintain it.

When people were forced to leave their home because of a foreclosure, they typically took everything not nailed down (and some things that were). Here in Mendocino County, we saw homes where not just built-in kitchen appliances were taken, but also electrical fixtures, toilets, and once in a while, even carpets—and I’m not exaggerating.

Because of the number of foreclosures and short sales that resulted in a lack of maintenance (and sometimes vandalism), huge numbers of properties on the market required fixing up. A few of those still exist.

Most of these properties are more appropriate for investors than for people who plan to occupy the property as their primary residence, because many of these properties need quite a bit of work before they are habitable. Investors typically don’t need to move in right away (if ever), and they have the time and money to make repairs. In fact, investors often have to foot the bill without traditional bank loans because many homes in poor condition scare away lenders. Investors can pay cash, and if they plan to do a fix and flip (purchase the property, fix it up, then sell it), it is likely they have knowledge of and access to people who can do the necessary repairs.

This has been the recent history of fixer uppers in our area; however, things are changing—actually, they are returning to an earlier norm. Fixer uppers are becoming attractive to buyers on a budget who plan to move in and make repairs as they can. Properties that require minor repairs (as opposed to major repairs) are much more common now than they have been for the past six or eight years.

There are some loans available that allow homeowners to get a combination loan: one that includes funds for purchase and renovation. This allows a buyer to close escrow with a standard or minimal down payment, and still have access to funds from the bank to do repairs or upgrades.

Strict limitations apply for these types of loans, but they can provide an opportunity for a homebuyer to acquire property that needs some tender loving care, move into it when the escrow closes, and complete the upgrades, refurbishment or deferred maintenance afterwards.

One such loan is an FHA 203K loan. This loan is appropriate for those with good credit (a minimum FICO score of 640), a stable job, enough money for a three-and-a-half percent down payment with some money left over, and a desire to renovate the home you purchase. The loan is intended to inspire buyers to purchase properties that require some work, and the amount of the loan can be based on the future value of the property (after the renovations are done). Eligible properties include owner-occupied, single-family homes or duplexes that are at least a year old. The FHA 203K loan is ideal for people who understand the challenges of home renovation (learn more about 203K loans in my previous article: Ask your Realtor about loans that best match your situation.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.



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