Next to your credit score, your debt-to-income ratio is the next most important thing that lenders look at when determining if you qualify for a mortgage. So what debt ratio do you need to qualify?

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Unfortunately, the answer will differ by lender. But ideally, you want a housing ratio of no more than 28% and a total debt ratio of no more than 36%. These are the conforming loan standards, which many consider the ‘gold standard’ in the industry.

What happens if you have a higher housing or total debt ratio? The good news is that there are likely still loan programs out there for you.

It’s a Ballpark Figure

The required debt-to-income ratios are really a ballpark figure. For example, if you had a 29% housing ratio and applied for a conventional loan, you may still get approved. The lender will look at the ‘big picture’ or all of your qualifying factors. If you have great credit and disposable income each month, they may let the 29% housing ratio slide.

The key is to make the rest of your qualifying factors as good as possible, especially if your debt ratio is higher than the program allows. The more positive factors you have to offset the negative, the better your chance of approval becomes.

The Debt-to-Income Ratios for Other Programs

If you don’t have the ‘ideal’ debt ratios of 28/36, you may have better luck with other mortgage programs that are available today including:

• FHA – The FHA allows much higher debt ratios of 31% for housing and 41% for your total debt ratio.
• VA – The VA doesn’t have a maximum housing ratio that they require. They do like your total debt ratio to be around 41% – 43%, though.
• USDA – The USDA allows a housing ratio of 29% and a total debt ratio of 41%.

As you can see, there are more flexible guidelines out there if you can’t meet the requirements of the conventional loan. In fact, the FHA, VA, and USDA have more lenient guidelines all the way around. Not only can you have higher debt ratios, but you can also have lower credit scores and put less money down on the home.

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Creating the Ideal Debt-to-Income Ratio

If you realize that your debt ratio is already high before you even apply for a mortgage, there are ways that you can help reduce it:

• Pay off some debts – If you can pay any of your debts off in full, do it. This will eliminate an entire payment from your debt ratio, which can help it.
• Pay some debts down – If you can’t afford to pay your debts off in full, consider at least paying them down so that the minimum payments decrease, which lowers your debt ratio.
• Get a second job – If you have the time for a part-time job, take one to help you have extra money. You can either use the money to pay your debts down or to increase your qualifying income for your mortgage.
• Start a side gig – If you can’t work a ‘formal’ part-time job, consider starting a side gig. You can do anything from sell crafts, do side jobs, or be a virtual assistant. You can then use the funds to pay down your debts. Since side gig money is hard to get through underwriting, your money is best used paying the debts down or off in full.

The ideal debt-to-income ratio is the one that works best for you. When it comes to qualifying for a mortgage, you’ll have to be in the ballpark of the program’s guidelines, as we stated above. If you find that you are just outside of a program’s guidelines, don’t give up. Just make sure you have maximized your other factors so that a lender won’t be too hard on your higher debt ratios and approve you for the loan.

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You probably took your time choosing the perfect interest rate before you locked it. Unfortunately, it does happen where a borrower can’t close on their loan before the rate lock expires. What are you supposed to do?

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Luckily, you have options. Some of which you might like and others which you may not like.

Ask for a Rate Lock Extension

Some lenders offer a free rate lock extension for a short period of time. Not all lenders offer this, so don’t assume that you’ll get it. But, it’s worth asking the lender about it. If you only need a day or two, they may be willing to extend the offer. If you need a few weeks, though, the offer may be a little different.

If your lender isn’t willing to offer the rate lock free of charge, they may offer it for a fee. Ask the lender what they would charge and then decide if it’s in your best interest to pay it. Remember you’ll pay many closing costs, and the rate lock fee will just add to them. Give it careful consideration before you decide to pay it.

Take the Current Market Rate

If you don’t want to pay the extension fee or your lender just doesn’t offer one, you may be able to take the current market rate, but only if the rates are worse today. Lenders usually offer the option to either extend the lock or take the higher current rate. If rates fell, they will likely only offer a rate extension.

If the current market rate is acceptable, you can lock it in and hopefully have enough time to get your loan closed before this one expires. Of course, you should talk with your loan officer to get a good idea of how much longer it will take to get your loan closed. Are the issues they are having something major? If so, you may need another 30 – 60 days for the rate lock. If it’s minor things that can be cleared up in a day or two, though, you may be able to take a shorter lock period, which should cost you less in the end.

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Use a Different Lender

If you’ve already gotten through a large part of the underwriting process, you probably don’t want to start over again with a new lender, but it may be your only option.

If you have to start over, keep in mind that you’ll have to incur the appraisal and title fees again. The first lender may also require you to cover those fees since they are a third-party service. You would have paid the fees if you closed on the loan, and the lender may still owe them even if you don’t close the loan.

Talk with your current lender about the possibility of transferring the appraisal and any title work over to the new lender. This still incurs a fee, but less than you may incur if you have to pay for two appraisals and two title searches.

Each lender differs in their policies, so make sure you know where the lender stands ahead of time so that you can determine the right steps to take.

The ideal situation is to get your loan closed before the rate lock expires. If you don’t, consider your options carefully. Weigh the pros and cons of paying the extension fee and maybe even try negotiating with the lender. They may be willing to budge a little bit. In the end, you should make sure you get an interest rate you are comfortable with at fees that you can afford

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If you can’t afford the closing costs on your loan, you aren’t alone. Many homebuyers can’t, which is when seller assist can help. You may also know it as seller concessions. It’s all the same thing – the seller helps you with your closing costs.

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Typically, you negotiate seller assist when you negotiate the price of the home and sign the contract. What the seller agrees to do is help you cover your closing costs. Knowing how seller assist works can help you understand the process.

Increasing the Purchase Price

In essence, seller assist allows you to increase the purchase price of the home, which in turn increases the loan amount. While it seems like the seller is giving you money, you actually take a larger loan amount. This is only possible if the value of the home supports the larger loan.

Here’s an example:

You agree to buy a home for $150,000. You decide that you don’t have the money for the closing costs, though, and need a little assistance. The seller agrees to credit you $5,000 at the closing. You raise the contract purchase price to $155,000. The lender bases your loan amount on the $155,000 purchase price. Let’s say you were using FHA financing. You must put down 3.5%. The lender then gives you a loan for $151,125. At the closing, the seller credits you the $5,000, which deducts $5,000 from what you’d need to close on the loan.

Essentially, your monthly payments are higher as a result of the seller credit. If it’s the only way you can buy the home, though, it may be your only option.

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The Seller Assist Rules

Each loan program has a maximum amount that the seller can help you with when covering your closing costs. The limit is in place to avoid ‘bribing’ or an inducement to purchase the home. For example, if a seller agrees to pay all of your closing costs, rather than abiding by a limit, you may feel like you have to buy that home because it will cost you a lot less out of your own pocket. The limits help keep things in perspective.

Conventional loans allow seller assist limits of 3% for borrowers that put down less than 10% for a down payment and 6% for borrowers that make more than a 10% down payment. The FHA allows sellers to provide up to a 6% seller credit. VA loans allow as much as a 4% seller concession, but they allow sellers to cover 100% of the buyer’s closing costs.

The program limit is based on the purchase. If you are securing an FHA loan, the seller could provide you with a seller credit equal to 6% of the purchase price.

The Home Value

The value of the home also controls how much seller assist you can obtain. If the value of the home isn’t high enough to support the higher purchase price, you won’t be able to take it. The lender needs to make sure there is enough collateral in the home in order for them to write the loan. For example, if with the seller assist your loan would be $205,000, but the home is only worth $195,000, the lender can’t write a loan for more than $195,000. In most cases, the lender will also require a down payment, making the maximum loan amount even lower.

The seller assist can be a great resource if you can’t afford all of your closing costs or you need a credit to fix something on the home. Assuming the home is in decent condition and passes the appraisal and is worth enough to cover the seller assist, you can buy the home you want with help from the seller.

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If you are ready to refinance your mortgage, you’ll need to know what type of refinance you need. Lenders have a few options at their disposal, including the rate and term refinance.

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The rate and term refinance is the most common type of refinance. As you can kind of tell from the name, the point of the refinance is to change the rate or the term, for the better. With this refinance, you don’t take cash out of the home’s equity. Instead, your mission is to make your payment more affordable or your term lower so that you pay the loan off faster.

Borrowers use this option to decrease their interest rate or choose a more favorable term for their loan. We’ll explore both options below.

Rate and Term Refinance for a Lower Rate

The most common reason borrowers use the rate and term refinance is to get a lower rate. They hear that interest rates dropped and they want a piece of the action. The rate and term refinance leaves your principal balance the same; it just puts you in a different loan.

Let’s say that your loan is with Lender A. But you find out that Lender B will give you an interest rate that is 0.75% lower than what you pay now. You want to jump on board, so you formally apply for the loan with Lender B. Once Lender B approves your loan, you go to the closing table. It’s here that Lender B takes the proceeds of your loan and pays off Lender A. You no longer have a loan with Lender A. You now have a loan with Lender B.

Once payments begin, you will pay Lender B each month. With this new loan, you have a new loan term. This is the length of time you have to make payments to pay the loan in full. You have the option to take a loan term that is identical to your loan term on your original loan or to shorten the term. We suggest that you take a term that is as close to the amount of time you had left on your original loan.

For example, if you had a 30-year loan with Lender A, but you paid 5 years on the loan, you have 25 years left. If you take out another 30-year loan with Lender B, you added 5 years back onto your loan term. Instead, you could see if Lender B will give you a 25-year term. The good news is that you may even be able to lower your rate a little more with the shorter term. The bad news is that your payment may be slightly higher because you decreased the time you have to pay off the loan.

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Rate and Term Refinance for a New Term

Some borrowers refinance their loan just to change the term. This is common for borrowers that have an adjustable rate mortgage. If you have an ARM, your rate isn’t fixed. It can change on the change date each year. This means from one year to the next, you don’t know what your interest rate will be. If that’s too scary for you or you want the predictability of the fixed rate loan, may want to refinance into a fixed rate loan.

Some borrowers also refinance their mortgage just to get a shorter term. If you know that you can afford a larger monthly payment, it may benefit you to get that lower term. This is especially true if you can refinance out of a 30-year term into a 15-year term. Essentially, you cut your loan term in half. This means you’ll own your home free and clear in half the time.

What you may not realize is that the interest savings will be the largest benefit. When you cut 15 years off the term of your loan, you could save thousands of dollars in interest. You’ll just have to make sure that the closing costs you pay to get the lower term make sense compared to the amount you’ll save on the interest over the life of the loan.

Cash in Hand With a Rate and Term Refinance

In some cases, you may be able to walk away from a rate and term refinance with a little cash in hand. Most lenders allow you to take as much as $2,000 out of the home’s equity without considering it a cash-out refinance. This sometimes just happens naturally as the lender estimates the closing costs, amount for the escrow account, and any prepaid interest. If there’s money left over and it doesn’t exceed $2,000, you can generally keep the cash rather than using it to pay down the principal of your loan.

The rate and term refinance is the best way to get the lowest interest rate on your loan. If you need to take cash out of your home’s equity, you can expect to pay a higher interest rate and more fees in order to make up for the riskiness of the loan.

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Are you avoiding buying a home because you don’t have money saved for a down payment?

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The good news is that there are loan programs that require no money down. The two main programs that allow 100% financing are for certain demographics, but if you are eligible, you can get a home with 100% financing.

USDA Loans

The first loan program is the USDA loan. The USDA is willing to provide 100% financing for low to middle-income families. But, your income isn’t the only thing that makes you eligible for this loan program. You also have to buy a home in a rural area.

Before you think that this program isn’t’ for you, check out the USDA’s eligibility map. There are many areas of the United States that you may not consider rural, but the USDA does. They base the information off the latest US census tract. Areas with low population may qualify for USDA financing. This information is subject to change, so make sure you check the map right before you start looking for an eligible home.

Now let’s look at what you need to be eligible based on your income.

You can make too much money and not qualify for the USDA loan program. The USDA takes into account all sources of income in your household. This includes anyone that lives with you even if they aren’t on the loan. If you have grandparents living with you that collect social security or your adult children live with you and make an income, it all gets included.

The USDA will total up your monthly household income and then deduct the applicable allowances. They provide the following allowances:

• $480 for every child under the age of 18 living with you
• $480 for every child over the age of 18 and a full-time student living with you
• $480 for every disabled relative living with you
• $400 for every elderly person over the age of 62 living with you

Once you have your eligibility income, you can determine if you qualify for a USDA loan by discussing it with a USDA loan officer or checking your eligibility yourself here.

If you are eligible, you can get 100% financing on a house that is moderate for the area.

Qualifying for the USDA Loan

It’s not enough to be eligible for the USDA loan. You also have to qualify for it. The USDA has the following flexible guidelines:

• 640 minimum credit score
• 29% housing ratio
• 41% total debt ratio
• Stable income and employment
• No defaulted federal loans in the past
• Enough money to cover the closing costs

The USDA lender will review your documents to make sure you meet the above requirements. The lender will then send your file to the USDA for final approval. Upon approval, you can purchase your new home with no money down.

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VA Loans

If you are a veteran of the military, Reserves, or National Guard, you may also qualify for 100% financing with the VA loan. In order to determine your eligibility, you must have an honorable discharge and served adequate time:

• Regular military members must serve 181 days during peacetime or 90 days during wartime
• Members of the Reserves or National Guard must serve 6 years

If you meet the above requirements, you can see if you qualify for a VA loan. The VA has some of the most relaxed guidelines out of any loan program. If you do qualify, you can borrow 100% of the cost of the home you want to purchase.

Qualifying for the VA Loan

The VA requires:

• 620 minimum credit score
• 43% maximum debt ratio
• Adequate disposable income for your area and family size
• No defaulted federal loans
• Stable income and employment
• Proof that you will occupy the home as your primary residence

If you meet the above requirements, you may be eligible to secure the VA loan and get 100% financing. The VA doesn’t require a second look at your loan file, as the USDA does. The VA underwriter has the power to underwrite the loan and approve it themselves.

Be Careful With 100% Loans

Even though it sounds great to have 100% financing, you may want to exercise caution. It can take you a while to build up any equity in the home, especially at first. Your payments typically go towards the interest for the first year or two. You will only pay a small amount of principal. This means you won’t build up equity until you start hitting the principal harder and/or your home appreciates.

This isn’t to say that a 100% loan isn’t worthwhile. It can be very helpful, but only if you plan to stay in the home for a while. If you know you will move in a couple of years, getting your head out from underwriter might be difficult and you could find yourself bringing money to the closing just to sell your home. In the right situation, though, a no down payment loan can be a blessing in disguise.

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As you search for a home to buy, you’ll see that some homes have different statuses. Two of the most common and yet most confused are contingent and pending. Both statuses mean there is an offer on the home and it may be off the market soon. However, it’s not off the market quite yet.

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Understanding the different terms can help you determine if it’s worth pursuing the home or if you should look elsewhere.

A Contingent Status

If you find a home with a contingent status, it shouldn’t discourage you to walk away from it. Contingent status means the seller accepted an offer with contingencies. These contingencies could potentially make the sale fall through, which is why you shouldn’t give up on it.

Technically, the listing is still active. Sellers may or may not still be accepting bids. Legally, they are able to accept bids while their home is in this status. They are ‘back up’ offers should the current offer fall through. Typically, the seller can’t just ditch the current offer and take yours, but they can accept your offer as a backup.

Typically, contingent offers have one or more of the following buyer contingencies:

• Financing – The buyer has a specific amount of time to secure financing without conditions. If the buyer can’t secure the financing before the expiration of the contingency, they can back out of the contract without financial penalty.
• Appraisal – If the appraiser finds that the home is worth less than the buyer’s offer, the buyer can back out of the deal without penalty. This contingency also has an expiration date. If the appraisal isn’t completed in the allotted time, the appraisal contingency could expire, leaving the buyer liable for buying the home no matter the value.
• Inspection – If the inspector finds issues with the home, the buyer can request the seller to rectify the issue or the buyer can back out of the sale. The buyer must make all decisions before the contingency expires, though.
• Sale of home – If the buyer must sell their current home in order to have money to buy the seller’s home they may include a contingency. Just like the other contingencies, the contract must include specific expiration dates for the contingency.

The seller may also add a few contingencies of their own:

• Active-First Right – If the seller knows it’s a seller’s market and doesn’t want to give up the chance of a higher bid, they can include this contingency. It gives the seller the right to accept a higher bid on the home, but the current buyer gets the opportunity to meet that bid first.
• Active – Kick Out – If the current buyer of a home has his own home to sell, the seller may want to be able to accept other non-contingent bids on their home. The kick-out clause gives the seller the right to accept the new bid and ‘kick out’ the current contract holder assuming they did not yet sell their current home.

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A Pending Status

If a house is in pending status, there may be contingencies in the purchase contract, but the buyer either satisfied them or waived them. The home must remain in this status until the lender/escrow agent complete the closing.

Even in pending status, though, sellers may still be able to accept ‘back up offers.’

The pending status you want to look for is the ‘Pending – Taking Backups’ status. With this status, the seller is likely willing to take a backup offer due to the length of time it’s taking to close on the current contract. If there is an issue, the seller may be willing to accept offers with no contingencies should the current deal not make it.

You may see statuses of Pending- Short Sale or Pending – (More than 4 Months or any other amount of time). Any pending status that lasts for a long time could mean the seller is willing to take other offers. The exception to the rule is a short sale, though. Short sales take longer in almost every case, and the bank probably won’t allow the seller to accept another bid unless something is really going south with the current offer.

The bottom line is that if you are aggressive and diligent, you may still buy a home that has a contingent or pending status. The deal isn’t final until the ink dries on the closing papers. If you still have interest in a pending or contingent home, let your real estate agent know about your interest. You should also do as much legwork as you can to figure out why the sale isn’t closing so that you can figure out how to have the advantage and win the bid.

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Buying a house can be a wonderful experience, but it can also be a regret-inducing nightmare if you aren’t careful.

If you’ve been pre-approved for an investment mortgage and are ready to buy your first investment property, make sure you check off these 10 items during the home inspection process to be sure that you are not buying a lemon.

Electrical

This is best left to a professional electrician who specializes in home inspections. Ask them for a complete report on the state of the houses electrical system and all the existing hardwired devices such as air conditioning and heating units, pumps, solar panels and so on.

Also, ask about the capacity of the system and whether it might need upgrading to handle supply new appliances that you may wish to install in the future.

Plumbing

Again, a professional plumber who specializes in inspections is essential here, all pipes should be tested for leakages, blockages, and the build-up of rust, mineral deposits, and algae. Water filters should also be opened and inspected for build-up and it might also pay to have the water tested for bacteria levels.

Structure

Here, you need to check the foundations of the building for signs of crack or bulges, it is also essential to check if the house as the foundation may have subsided over time. Check for signs of water damage, mold, and termites that may have weakened the structure.

Drainage

The efficiency of the property’s drainage system can be hard to ascertain unless you happen to be inspecting during a heavy downpour. Check the natural slope of the block and see where water will pool, inspect these areas for marshy, damp ground.

Inside, check the basement for signs of previous water damage and have the stormwater run-off pipes checked for blockages that may cause the house to flood in heavy rain.

Roofing

Check for cracked or shifted roof tiles, or if it is a metal roof check for rust and deterioration. Examine all the houses ceiling for signs of water damage and if found carefully check the roof above those areas for potential leaks. Check all the roof gutters and downpipes for leaks and debris build-up.

Trees that lean onto the house can give access points for rodents and other pests and could fall on the house during storms.

Pests

Termites are the number one pest to check for, as they pose the biggest most risk of seriously damaging the structure of a house. Look for signs of other pests like ants and rodents, but these are less of a concern and can be removed with adequate pest control measures.

Another thing to check for is the presence of nesting flocks or birds, which can be very noisy and messy.

Heating and Air conditioning

All heating and cooling appliances should be thoroughly tested for operation and efficiency, older units may need to be replaced and this can add a large to the repair bill for the house.

Make sure to check the insulation for signs of deterioration and this can greatly affect the efficiency of your heating and cooling devices.

Documentation

Check with the local county office and the owner that all the documentation for extensions and renovation are in order or you could find that you have to tear down half of the house that wasn’t built to regulation.

Doors and frames

Check all doors and window for signs of warping and ensure that they open, close and lock properly. Also, check for termites and general deterioration of paint or materials.

Garden and grounds

Check for large trees whose root systems might eventually crack paving or even damage the foundations. Plants like ivy growing on the house can also cause structural deterioration over time. Lots of deciduous trees mean you’ll have your work cut out for you in autumn. Don’t forget to check any sprinkler systems for leaks and general damage as well!

Once you are satisfied that you are fully aware of the condition of these ten aspects of your house, you can move forward with confidence and make a sound investment for the future.

Self-employed borrowers bring a unique challenge to mortgage lenders. They don’t have consistent income confirmed by a third party. Instead, they have income that they claim themselves. Even if the money is legitimate, lenders have to go above and beyond to ensure that you can afford the mortgage beyond a reasonable doubt.

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The days of stating your income are gone. Instead, you have to prove your income with proven methods. If you are unable to prove your income, even if it’s valid, you won’t be able to qualify for a mortgage.

So just what do mortgage lenders look for in a self-employed borrower? Keep reading to find out.

Verifiable Tax Returns

A majority of the time, you need to provide your tax returns to verify your self-employed income. Even if you pay yourself with a W-2s, lenders need to see what you claim on your taxes. The adjusted gross income on your tax returns is what lenders will usually use for self-employed borrowers. This is because it takes into consideration any expenses you write off due to owning a business. This comes off your bottom line and lenders can only use the income you claim on your taxes.

In some cases, not all, you may also have to provide your business tax returns. This is necessary when a lender can’t differentiate between your individual income and your business income. It’s also the case if your business is a corporation. It’s best to keep the two completely separate to avoid the complexity that can occur when you apply for a mortgage.

Consistent Income

One thing all lenders want to see out of self-employed borrowers is consistent income. In other words, they want to see you making around the same amount of money each month, or more. They don’t want to see declining income.

It’s understandable to have income that fluctuates throughout the year, but on a year-to-year basis, your income should be fairly stable. If there are great discrepancies in the income from year-to-year, expect a lender to ask questions. They will want to know what happened and if you have overcome the issue.

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A Flourishing Industry

Expect lenders to look into the industry that your business operates in to make sure it’s in good condition. If you are in an industry that just doesn’t have the backing or a lot of businesses are falling out of, it could be a red flag for the lender.

You want to show that you are in a business that has a solid future. In other words, you want a business that has financial stability and that has high consumer demand. If it’s a business, no one has heard of and the demand is low, it may not fare as well in the eyes of the lender.

The Length of Self-Employment

Finally, lenders want to see borrowers that have been self-employed for a while. Typically, 2 years is the cutoff, but some lenders do cut some slack in this area. We don’t recommend applying for a mortgage 3-6 months after opening a business, but after one solid year, it may be a possibility.

In order for lenders to consider self-employment that has lasted less than 2 years, they want proof that you know the industry well. In other words, that you worked in the industry in the past. If you open a business that coincides with the employment you had before it, chances are that you have the knowledge necessary to succeed. If instead, you go into a completely different business where you don’t have a history or proof of education, you may have more trouble getting a loan.

Lenders don’t automatically shut down borrowers that are self-employed. You just need to be able to provide the lender with proof that you are a good risk. If the risk of default is high, a lender may not consider your application. It’s a good idea to have compensating factors to make up for your self-employment. This could include plenty of assets on hand, a low debt ratio, and a high down payment.

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Buying a fixer-upper home may seem like a great idea, especially when you can get a great deal on it. Sometimes it is just as perfect as it seems, but there are certain things you should consider before you jump into this type of purchase.

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Don’t focus only on the low price you get for the home. You have to look at the big picture. If you don’t, you could find yourself buying a money pit that could leave you with buyer’s remorse.

Look at the Neighborhood

When you buy a home, whether it’s a fixer-upper or not, you buy into a neighborhood. You should know what that neighborhood is like before you settle on purchasing a home. Will the neighborhood support the home you are about to create? This is especially important if you are going to do a complete teardown or completely change the face of the home. Will the home look like it fits in or will it stick out like a sore thumb?

If the home will stick out, you may have to worry about its value. If the homes around the home you buy won’t support the value, you won’t be able to sell the home for the amount you may have hoped. Do your research on the neighborhood and even see if anyone else has bought a home in the area and fixed it up. If they did, ask what type of return they received on their investment to see if it’s worth it for you.

Get an Inspection

You’ll want to know long before you get far into the underwriting process the condition of the home. Even if everything looks okay to the naked eye, there could be major issues that you are missing. The inspector will find those major issues for you and let you know about them. You can then decide if this is the right purchase for you. If you are financing the home, it’s important to have an inspection contingency on the contract so that you have the right to back out of the purchase if you can.

Once you have the inspection report, you can decide if this home is something you want to undertake. Are the issues worse than you anticipated? Will the home even pass an appraisal if you plan to finance the home? Can you afford the necessary repairs, let alone the cosmetic changes you wanted to make?

Beware of Major Issues

Your inspector should look for things like asbestos and lead paint. If either of these issues are prevalent, you will not be able to secure financing unless the issues are fixed. This leaves you with the option to pay cash for the home or apply for the FHA 203K loan, which provides funds to fix up a home as well as buy it.

Asbestos and lead paint issues are nothing to mess around with on your own, though. You will need professionals that can properly remove the issue for you. This could be not only a financial issue but also a health issue. You won’t be able to live in the home or even be near it until the issue is resolved.

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Pay Close Attention to the Layout

There’s not much you can do about the layout of a home no matter how much you renovate it. Pay close attention to it as you look at the home – is it a layout that people usually like in that area? For example, do many of the homes in the area have an open layout? If so, and this home has a closed layout, it may not sell as fast as you would like. Know your audience and what people in the area like before you commit to buying a home, especially if you plan to renovate it and flip it as quickly as possible.

Know the Integrity of the Structure

One area you don’t want to avoid is the home’s structure. How is the foundation? Are the floors straight? Do the walls have cracks? These large issues could cause problems with financing the home as well as be costly to fix. Do you want to take on a job that big or were you just looking for a home that you could make cosmetic renovations on and flip it?

You’ll Need a Contingency Budget

No matter how good or bad the shape of a home is when you buy it, you’ll need a contingency budget. We recommend giving at least a 20% cushion to your renovation budget. This way you’ll know if something unforeseen occurs, especially when contractors knock down walls or mess with electrical or plumbing issues, that you’ll have the funds to fix the issue.

Buying a fixer-upper either to live in yourself or flip and sell for a profit can be exciting. Just make sure you take your time and decide if the project is right for you. The more research you do, the better your chances of buying a fixer-upper that gives you a decent return on your investment.

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