Understanding Fixers

If I could count the number of times I heard a buyer say, "...and I don't mind a fixer," I would be a very wealthy woman. Truth is, most of us wouldn't mind a fixer of some kind. After all, it's an age-old real estate truth that the best buy is the worst house on the block. My first broker told me, get the dog of the street and you've got built-in equity.

Now while all this is true, in this market, I think some kind of clarification is due. Long gone are the days when you can buy a piece of land in Carmichael with a shaky shack atop it, with big plans to tear down and start over, all with the bank behind you.

Yep, the bank.

The first and worst problem with "fixers" today is that if you've got to get a loan to buy the house (and nearly everybody does) then you are limited into how much fixing can be overlooked. For instance, with FHA loans, the home needs to be habitable. That means, no broken windows, missing carpet, roofs in need of repair or broken heating and air. That sure doesn't leave much to the "fixer" concept, now does it? I guess some peeling paint might be okay, although if the home was built prior to 1978, you might have lead-based paint issues that FHA would pooh-pooh about.

Of course, there is an FHA 203 loan that is actually a loan for rehabbing a house, but we won't get into that here as it's really a whole other matter.

So take your conventional loan. And, take your fixer upper. Getting the house will depend upon a few things, but most of all, two things: Your loan qualifications and how much fixing needs to be done.

If you've got super shiny crazy-good credit and 20% to put down, well then, you have a good shot at a good loan with a low interest rate and a house that needs some moderate fixing. I will not qualify "moderate" as it can mean any number of things. However, let's just say that the house needs a bit more than repainted and floored.

If you're not in quite such a comfy position, consider houses that are cosmetic fixers. These houses can appear to be real dumps; pink walls, missing appliances, broken floor tiles, missing bedroom doors and strange symbols painted on the ceiling. (yes, I've seen it). In these cases, yards may be a force to be reckoned with and fences may be falling down (which is okay, because fencing doesn't come into the appraisal), and the houses can look really, really bad, but still, it's all only surface repair and update, hence the term "cosmetic fixer." In these cases, you're probably getting a good deal and you'll probably be okay with financing.

However, when the appraiser comes out, and he always will, then any major overhaul works, structural, roof featuring unplanned on sunroof (i.e. holes in ceiling!), you'd better be sure your ducks and financing are all in a row in order to find the funds to buy the house to do the fixing.

Hopefully this brief but well-meaning discussion got you thinking about what you really mean when you tell your agent you are looking for a "fixer-upper," because now you know, financing comes into play and helps you decide how much fixing you really can afford to buy.

The bottom line is this (and it's the bottom line I use so often, I should just make it my default footer): Find a real estate agent who knows what the heck is going on in the real estate market and a lender who knows what the heck is going on in financing. Your goal is to get the most (or perhaps in this case, the least) house for the money at the best rate and terms.

Good luck!
Tamara

PS

Catch my Sacramento Success Radio Show on each Wednesday at 10 AM at www.inLoveWithSacto.com. We chat a bit about real estate, self-help, health and local businesses.