I think we've all heard of the term fixer upper. However, what each of us pictures when someone speaks that phrase can be quite different. Whenever a client tells me that they're fine with a fixer upper, or even wanting a fixer upper I ask them what that term means to them. It can mean anything from they're fine with needing to paint before they move in, to they are comfortable with a house with a caved in foundation and mold throughout. Of course, it's often somewhere in between those extremes but all the same, the meaning is different to everyone.
If I have a buyer that is fine with buying a house that has significant issues because they have the skill set to fix it or the funds to support it, then the next conversation is about financing.
"Cash Only" - What Does It Mean?
Typically, if a buyer is getting a mortgage there are a few basic items that all lenders require in order to lend on it. Aside from not having large issues that can be visibly seen, like mold or a caving in foundation, there are a few things you may not even think of. The electricity must be on, the water must be hooked up and on, and the heat must be functioning. These are just the basic requires for a conventional loan; government loans have their own additional criteria on that list. So, what can you do if a property comes on the market and it is advertised as "cash only"?
Usually, this is because a seller (or their agent) knows that one of the three above items are not on or functioning. If, for example, the house has been winterized and the seller is not willing to get it up and running for the bank appraisal, there are still a couple of options. Depending on the pride of the house, it may be feasible to get a home equity loan on a property the buyer currently owns in order to then make a cash offer on the fixer upper. Then once they've fixed it to a condition that can be financed, they can get a traditional mortgage on it.
Renovation Loans, Another Alternative
If the buyer doesn't have equity in another property to draw from or doesn't want to, another option is a renovation loan.
There are a few different renovation loans available and it's worth looking into them to find which is the best fit for you. If you are already pre-qualified with a lender for a traditional mortgage that's a great place to start! You can ask them if they offer any loans that would allow you to borrow extra funds to hire someone to do the repairs after closing. If they can't, your real estate professional can be a great resource here. They can put you in touch with lenders that offer these programs and give you feedback from other buyers that have been through it. These loans are a fantastic product for making homes that do not currently meet mortgage requirements financeable. If a home needs a heating system, a roof, et.c this is a great solution.
However, that is not the only use. They can be used for any types of renovations. So say, for example, you find a house with the perfect yard, in the town you want, but it has a kitchen straight out of 1972. If your budget is $250,00 but this house is listed for $200,00 because it is outdated (still financeable, just ugly), then this is the perfect way to get your house remolded and stay within your budget. You can pay the base price for the house and finance the remaining $50,000 for renovations. You'll want to work closely with your lender and your Realtor® to make sure you're within your budget and that the program you choose will work with the house you choose. It can be a fantastic way to expand your housing options.
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