Everyone is looking for a deal these days. When you work as hard as most people do, you want your money to go as far as it can. One of the ways people try to do this is by purchasing a property that needs a little work. Maybe it needs paint or carpet or wallpaper removal, but the thought is that if you can get the house at a good price you can put a little “sweat equity” into it to improve the value without having to pay as much for the house. Sounds like a good plan. Here are some thoughts to consider if you are thinking about doing this.
First of all, unless you’re looking at new construction you probably won’t find a house that doesn’t need at least a little something done to it after you buy it. Maybe it’s the hot pink walls in the bedroom or the lime green kitchen appliances. Every house has something. Most likely this isn’t really going to change the overall value of the home on the open market. Personal preferences are just that: personal. After you get through “improving” the look of your new house you have something you love but maybe others aren’t impressed by. You’ll find that out when you try to sell it yourself. Because of this, don’t expect small things like this to affect the overall price that much. You’re buying the house because it fits your family and your lifestyle. The little things are secondary. Once you walk into the house that just shouts at you that it’s “the one”, you won’t really care that the faucets in the master bath are gold.
Then there’s the second group of houses: those that are not move in ready. These properties have bigger issues. The carpet may be filthy or there may be holes in the walls. Possibly the HVAC system is questionable or appliances may not work or are gone completely. In these cases the properties are priced accordingly and seem like a good deal. I’ve been with many a client who has walked through a house such as this and made statements like, “oh, I can deal with that if the sale price is right.” And maybe they can. But if you’re one of these types of clients you’ll need to take into consideration two things.
If you need a loan to buy a house remember the bank will be your partner in the purchase. If the house is in too bad a condition the lender will not approve the loan. When they send their appraiser out to the address he will make notations about the poor condition of the dwelling. Since the bank is holding the property as collateral against your promise to pay the note, if they don’t feel the house is a good risk you will be denied.
Assuming the house is in good enough shape for the lender the next thing to consider will be the expense of the repairs for you. You may be saving several thousand dollars on the purchase of the house but then you’ll need to spend the money you saved to make the repairs so you can move in. Recarpeting a whole house, replacing an HVAC system, buying new appliances, and wall repair can cost a lot of money. You’ll need to either pull that out of savings or use credit to purchase them. In the latter case you still have payments but now they’re at a much higher interest rate than your mortgage. In the former case, you could have taken that same amount of money from savings and lowered the initial amount you were borrowing from the lender to buy a house that is move in ready without the repair headaches.
Home loan interest rates have been inching slowly upward but they are still at historic lows we may never see again in our lifetimes. If you buy a home and get one of these low interest rates you’ve already won big time. If you’re a do-it-yourselfer and you love the challenge by all means go for it. But if you’re someone who’s just trying to find a way to save a few extra bucks, simply buying right now is a win for you. You’ll probably never be able to buy as much house for your mortgage dollar than right now.
If you’re thinking about buying a home, I can help you. Call me today at 918-809-5199 and we’ll get started!