Deciding on Whether to Buy a Fixer-upper


CNBC reports that data from the S&P CoreLogic Case-Shiller National Home Price Index show a 13.2 percent increase in home prices in the United States in March 2021 compared to March 2020. According to Madison’s Lumber Reporter, the median sales price of new houses sold in March 2021 was $330,800 and this increased considerably in just a month to $372,400 in April. Analysts polled by Reuter stated that the rate of housing price increases estimated in February will almost double in the rest of this year.


Demand continues to surge according to estimates from the U.S. authorities. The rate of annual sales of new single-family houses in the country increased by 48 percent from 582,000 in April 2020 to 863,000 in April 2021.

The Allure of Fixer-uppers

Many homebuyers, particularly millennials aged 25 to 40 years old, cannot afford the record high prices of new single-family homes and cannot compete with other buyers willing to give a higher down payment or ready to pay in cash. According to Business Insider, in the sixth annual millennial home improvement survey of Bank of America (BofA) Research among 1,100 respondents, 82 percent stated that they were more likely to purchase a fixer-upper over a new house.


The Instagram account Cheap Old Houses, founded by Elizabeth Finkelstein, shows the popularity of fixer-uppers. It features historic homes that cost less than $100,000 and are mostly located in small towns. The account had 750,000 followers at the start of the pandemic and now has 1.5 million followers. Millennials who are mostly working remotely prefer smaller towns perceived to be safer amid the pandemic. This age group also feels comfortable doing much of the restoration work themselves.

Loans to Finance a Fixer-upper

When purchasing a fixer-upper, a renovation loan can cover the cost of the house, improvements, rent to live elsewhere while the renovation is ongoing, and exigency funds. This distributes your renovation expenses across your monthly mortgage payments at the lower mortgage interest rate.


The Federal Housing Administration’s FHA 203(k) loan accommodates lower incomes and credit scores compared to conventional mortgages. Fannie Mae’s HomeStyle loan requires higher credit scores but allows even non-essential improvements. The Department of Veterans Affairs’ VA renovation loan requires a VA-approved contractor and has limited eligible projects. Freddie Mac’s CHOICERenovation loan allows the inclusion of upgrades to withstand natural disasters.

How Much to Pay for a Fixer-upper

Before jumping in to buy what seems to be an affordable old house, though, homebuyers need to check how much they will spend on fixing it up. They must also determine if the house is livable as it is and they can do the needed work piecemeal while living in it, or if they have to spend extra to rent a place while fixing the house.


Renting vs. Buying a House - How to Make a Decision, Pros & Cons


Professionals must first assess the property. Buyers must hire a structural engineer to determine the structural integrity of the house and identify necessary structural renovations and costs. They must include the roof in the inspection.


An experienced plumbing company must inspect the entire plumbing system including the sewer and septic system, and a certified electrician must check all electrical connections. The gas and heating, ventilation, and air conditioning system (HVAC) must also undergo professional inspection. An expert must check the house for any materials that have unhealthy emissions, including old insulation. A pest control company must check for pests. Buyers must ask for written quotations on the cost of all needed changes.


These cover the basics, but the buyers must also factor in other modifications necessary such as removing old wallpaper, repainting, removing old carpets, replacing these, or changing the flooring type. If there are working but old-style appliances, they may want to replace these with new ones.


Buyers must also check on the cost of permits to do the necessary renovations and include this in computing the entire cost. They must then check on the average price of similar-sized homes in the area that do not need renovations. To arrive at the fair price to pay for the fixer-upper, they simply subtract the cost of renovations from that figure.


Buyers must, however, always provide a margin for contingencies. Prices of labor and construction materials are continuing to rise. Also, if they need to rent a place during renovations and the work period stretches, their rental expenses will exceed their budget.

Decision Time

Buying a fixer-upper is not an easy decision to make. It means making a major commitment not just financially but also of time and effort. Going through the extensive work of rehabilitating a house is a rollercoaster ride of disappointments and frustrations along with victorious milestones.


For some people, this is part of the charm of a fixer-upper. They are thrilled by the prospect of taking on a rundown house and restoring it with their customizations, making it truly their own.