How to Finance a Fixer-Upper and Win in Today’s Market

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Published On:
January 23, 2019

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Today’s housing market remains hot, and challenged by limited housing inventory in southwest Michigan. With fewer houses to buy, the competition is fierce, and finding the perfect home is increasingly difficult. As a result, many homes on the market have become aged or obsolete. The popularity of “Country Oak” kitchen cabinets and the trim of the 1990’s has faded. Buyers in the current market prefer white or painted cabinets and trim.

You might find a house in the perfect location in the perfect school district, but the home desperately needs updates, and may not have some of the features on your checklist. Think about the before and after images on your favorite HGTV renovation shows. But how do you buy the home, put money towards a down payment, and pay for the renovations? This can be a hurdle for many with limited funds.

Renovation financing from Arbor Financial can help you purchase that dated house in an excellent location and turn it into your dream home. 

Advantages of buying a fixer-upper

The advantage of buying a fixer-upper is your ability to purchase a home at a lower price and make it your own. Maybe there is a certain feature or look that you’re going for, and you could find an older home that will allow you customize it to your liking. And when you’re in a competitive market, like we are now, you will generally find less competition for fixer-uppers as most people don’t want to bother with renovation work. Another advantage of buying a fixer-upper is your ability to build equity quickly by adding instant value to your home after the remodel is completed.

What is a renovation loan?

A renovation loan gives homeowners or prospective homeowners the funds needed to fix, update or renovate their home. Whether your home needs small cosmetic updates or larger more complex renovations, like a room addition, new garage, or total remodel, Arbor Financial has renovation loan options that may be your solution.

  • Cosmetic Updates. The purpose of the Arbor Financial renovation mortgage is to help borrowers buy a home as well as fund home improvements while having only one mortgage payment. It works like this: you find a house that sells for $150,000, and you plan on putting $50,000 into repairs and upgrades. So, your renovation mortgage can be for up to 97% of the home purchase price plus repairs or in this case $194,000*.

The Arbor Financial renovation mortgage is designed for non-structural and cosmetic improvements up to $50,000 (e.g.. paint, carpet, counter tops, cabinets, siding, AC/Heating, enhancing accessibility for a disabled person, windows or new roof). If you are looking to add an addition onto the home, knock down walls, or other structural upgrades then a construction renovation loan would be the way to go.

  • Construction remodel. When you are considering a more extensive renovation--one that costs more than $50,000 or that involves structural work (additions, removing walls, adding a garage)--then the Arbor Financial construction renovation loan can help you.

How to use a renovation loan as a bargaining tool

If you find a home and it has been on the market for a while because it needs costly repairs like a new roof or new heating system, and the seller doesn’t want to put up the money for the repairs, you could certainly use this as a bargaining tool. Let’s say the seller is asking $200,000, and it needs a new roof at a cost of $18,000. If the seller is not willing to pay for the new roof you could bargain with them to sell for $182,000 and cover the cost of the roof as part of the renovation loan.

Benefit of the renovation loan

The biggest benefit of Arbor Financials renovation loan is how quick you can access the funds compared to government backed FHA renovation loans.

How do You qualify for a Home Renovation Loan

To qualify for an Arbor Financial renovation loan the home, condominium, or manufactured house must be your primary residence. You can however purchase a 2-unit duplex as long as you occupy one of the units. You can borrow up to 97% of the total cost of the home and upgrades (slightly less for manufactured homes). Second homes will also qualify up to 90% of loan to value with a credit score of 700 or greater. Improvements are for up to $50,000 in non-structural work.

The best thing to do is work with your local mortgage lender who can run several scenarios for you and help provide you with the best mortgage solution. So, yes, the housing market is challenged with low inventory but don’t let this stop you from creating your dream home! Call us to discuss your next fixer-upper or renovation project 269.544.3105.

*subject to appraised value.

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