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Considering a fixer-upper? Here’s what you need to know

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What first-time homebuyers need to know before taking the plunge on a “project”

A new minimalist kitchen, white and natural wood cabinets, some cups and bowls placed on the natural wood countertop. Chris Mottalini

Homebuyers often start their search looking to score a deal on a fixer-upper, hoping to transform it into their dream home. Though it sounds like fun, the reality is that the overhaul process—fraught with decision-making, unexpected headaches, and constant price considerations—can quickly overwhelm.

To really make a renovation work, it’s essential to plan ahead, secure a good architect and contracting team, and set a realistic budget and timeline. Curbed spoke to the pros about what you need to know before taking the plunge on a fixer-upper.

Be realistic about what you’re willing to take on

“Before you even look for an apartment or home, you want to understand what type of project you’re comfortable with,” says Paul Skema, president of architecture and construction firm Roth Design + Build. It’s one thing to buy a minor fixer-upper that can be tackled with cosmetic projects—like pulling up carpet or laying down tile—but it’s something else entirely to buy a home that has serious structural issues. The magnitude of the project you’re willing to take on will set the tone for your house hunting (it will also impact what kind of mortgage you can get). If you can’t commit the money, time, effort, and risk that goes into buying a place that needs a gut renovation, skip the open house altogether, even if the price tag looks appealing.

Financing a fixer-upper.

How you’ll pay for your renovation will impact your house-hunting process. If a house is in good condition and just needs cosmetic changes, you can likely qualify for a conventional loan. In this case, you’ll need to plan what portion of your savings goes towards the down payment and closing costs and how much you want to keep in reserve for repairs. However, if there are larger structural issues or major repairs (say the house needs a new roof or the kitchen has no working appliances), you’ll need a renovation loan.

There are three types of renovation loans: an FHA 203(k) renovation loan (this may require the use of a HUD consultant, but lower credit scores and lower down payments are permitted), a conventional loan (Fannie Mae’s HomeStyle Renovation Loan is a popular example), and a VA renovation loan (designed exclusively for veterans). These are 30-year, fixed-rate mortgages with no prepayment penalties, and all three allow borrowers to purchase and renovate the property after purchase. “Because the renovation work happens after closing, these loans require the lender to see the project through from beginning to end, which is why they are harder to find,” says Milton Manolis, retail national renovation sales manager at LoanDepot. “It takes a major commitment by a lender to offer this type of loan product, and many aren’t willing (or even capable) to do so.”

Later on, once your renovation is complete, there are some further financial strategies you might employ. If you believe you have significantly increased the value of your property, you can go back to your lender and request a new appraisal. If you put down less than 20 percent as a downpayment, this higher appraisal may enable you to stop paying private mortgage insurance (PMI). Some homeowners go even further and will refinance after a major renovation.

Set a budget

If you’re interested in tackling a fixer-upper, be realistic about how much money you must set aside for renovations after the down payment, include costs like your rent for an alternative living situation while it’s happening, at least a 10-percent cushion for going over budget (and you will go over budget) and even things like heat, which your contractors will need while they are working and could add up to hundreds, and even thousands of dollars.

If you’ve identified an architect or contractor you’d like to work with, the pro can offer an expert opinion on the scope of the project after accompanying you on a walk-through of the property. When talking to your architect or contractor, set a range for your budget, and then communicate that says Jean Brownhill, founder of renovation matchmaking service Sweeten; for example, if you hope to spend $30,000 on your new bathroom, say so. “By setting the price, you’re setting the approximate level of craft, finishes, and customer service that you expect.” Sweeten, which pairs general contractors with renovation projects, offers an online tool to help parse budgets for kitchens and bathrooms.

Secure the right team

As tempting as it sounds to buy a cheap fixer-upper and hand over the renovation job to the lowest-bidding architect or contractor, don’t. Working with the cheapest firm can be a huge risk, especially with older homes that may have structural problems. “Higher-quality firms limit the risk of the project,” Skema says. “Cheaper firms, many with less knowledge and less experience, will bring more risk and require more involvement from the homeowner.”

Word of mouth or a personal reference is always a great way to find professionals, but if you can’t get a personal recommendation, do a detailed online search on sites like Houzz and cross-reference the Better Business Bureau. Beware of ratings on Angie’s List and Home Advisor, which merged in 2016. A 2019 study by the Consumer Federation of America found that the sites gave preferential ratings to paid advertisers, posted overall grades that were not consistent with customer grades, and contained fake reviews.

Once you’ve identified a team with relevant experience ask for references (and call them!). This may feel like a lot of research (especially if you haven’t found your house yet), but it will result in a reliable team that won’t make avoidable mistakes that will cost you more time and money in the end.

Get to know the neighbors

As personal as your renovation might feel, you must prepare for outsiders occasionally calling the shots. Significant apartment renovations require the approval of the building’s owners association, some of which set strict rules on the scope of construction and when it’s allowed to happen. An intensive house renovation runs the risk of aggravating your neighbors. Check local databases to see if neighbors have filed complaints about the fixer-upper you’re considering, which can reveal whether the home has serious issues.

Familiarize yourself with permitting

The process of obtaining permits for construction depends on where you live and the process can be time-consuming and unpredictable. Upgrading plumbing and electrical systems, moving walls, or changing other structural elements will require a licensed and insured firm, which may require additional permits or a more involved approvals process. Ask your contractor and/or architect who will handle the permits and how they’ve handled delays in the past.

Anticipate the worst

In apartment buildings, contracts are typically required between the owner and the owners association confirming that renovations will be undertaken to code and without damage to the building. If a reno goes horribly awry, the building holds the homeowner responsible, so you want to make sure that your contractor has both liability insurance and workman’s compensation (ask to see the certificates don’t assume they do). Finally, make sure your new homeowner’s policy will protect you in the event of a contractor-caused issue.

Prepare for the an emotional roller coaster

Homeowners don’t always recognize the emotional labor that goes into transforming a fixer-upper. “When [the moment for your renovation] finally comes, after you’ve saved money and bought a house and you get to make it look how you want it to look … a lot of stuff comes up,” Brownhill says. To plan for the smoothest process possible, be honest about your goals and your budget before finding an experienced and communicative team that can make make all your fixer-upper dreams come true.