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Buying a fixer-upper as your first home is the home-buying hack you didn’t know you needed.

In 2021, nearly 30% of houses were purchased with all-cash offers. Although the market has cooled off somewhat since then, it can still be hard to compete (but it is possible – especially with programs like the TK).

One way to beat the crowds of other homebuyers is to buy a fixer-upper. Sure, it won’t be picture-perfect the day you move in. But it may be more affordable. Plus, you get to put your own spin on the property over time and truly make it your own.

And if you find a great house that needs work right away, there’s a loan for that. Renovation loans allow you to purchase and fix up a house with a single, low- or no-down payment loan.

Learn more about your renovation loan options.

Is buying a fixer-upper as your first home really a smart idea?

The short answer is yes. Buying a fixer-upper as your first home can expand your home-buying options since you’re not just looking at the turn-key homes everyone else is bidding on. You may be able to purchase a fixer-upper for less than you expected to spend, or you may be able to negotiate on price or terms with the seller.

Of course, buying a fixer-upper isn’t the right call for everyone. If you don’t have the time or mental bandwidth to think about renovations, contractors, and DIY projects, a fixer-upper may not be your best option.

But remember that the term “fixer-upper” is a broad one. Sure, it can refer to homes that need complete overhauls of the kitchen and bathroom plus a few walls that need to come down. On the other hand, it could refer to a house that is totally move-in ready but that has some outdated fixtures and needs some fresh paint.

Don’t be afraid to consider a house that’s a little dated but is otherwise in good condition and in an area you’d like to live.

Related reading: Buy an Ugly House: This Is How You’re Going to Compete in This Market

Pros and cons of buying a fixer-upper as your first home

Pros:

  • Less competition
  • You can personalize your home from the start
  • The purchase price may be lower
  • You may find a good deal in a desirable neighborhood

Cons:

  • Renovation projects can be time-consuming
  • Finding contractors may be challenging due to demand
  • You may not be able to move in immediately if you’re doing major renovations
  • Construction costs can add up quickly

Related reading: Is It Worth Buying a Fixer-Upper? Here’s What You Should Consider

Using renovation loans to buy a fixer-upper

Renovation loans, also known as fixer-upper loans, can be a great option for buying a fixer-upper as your first home because they allow you to bundle the purchase price plus renovation costs into a single mortgage. That means one monthly payment; and most renovation loan options have low- or no-down payment requirements, making them more accessible.

Here are some options that may be available to you.

Fannie Mae Homestyle Renovation Loan

This Conventional loan may be used to pay for your home and any cosmetic, structural and luxury upgrades. Any renovations done by your licensed contractor should be completed within six months of closing. You can borrow up to your pre-approved amount, and the required down payment is 3%.

Freddie Mac CHOICERenovation® Loan

This Conventional loan requires as little as 3% down for first-time homebuyers purchasing a primary residence. You can use this loan to pay for your home and any renovations, including cosmetic, structural and luxury upgrades.

FHA 203k Loan

The Federal Housing Administration (FHA) backs two types of renovation loans: the FHA 203K Standard and FHA 203K Limited. Both have a low down-payment option that only requires 3.5% down.

With the Standard loan, you can borrow up to your pre-approved amount. It can be used to pay for your home and any cosmetic or structural changes.

The Limited loan allows you to borrow up to your pre-approved amount, but only $35,000 may be used on renovations. In addition, the upgrades can only be cosmetic changes. Structural repairs or additions are not allowed under the Limited option.

VA Renovation Loan

If you are a veteran, active-duty service member or an eligible surviving spouse, you may qualify for a 0% down* VA renovation loan. The VA renovation loan allows you to borrow up to $35,000 to make cosmetic renovations to a property. The renovations must be done by a VA-approved contractor.

USDA Renovation Loans

If you qualify for a USDA renovation loan, you can finance your home purchase and renovations for 0% down**. Similar to the FHA 203K loans, there are two types of USDA renovation loans: USDA Standard and USDA Limited. The difference between the two is that the USDA Limited loan only allows for $35,000 of your pre-approved amount to be used on your renovations. In addition, you can only use the funds for cosmetic changes.

The USDA Standard loan allows you to borrow up to your pre-approved amount, with no limit on how much of the loan is used for renovation costs. It can also be used for cosmetic or structural changes. If you are a licensed contractor, you should note that you may not do your own renovations with a USDA renovation loan.

Buying a fixer-upper as your first home FAQs

How much do you have to put down on a fixer-upper?
Fixer-uppers require between 0%-5% down depending on the type of loan you choose and the type of property you purchase.

Is buying a fixer-upper cheaper?
While few houses are cheap these days, buying a fixer-upper can be cheaper than buying a turn-key property that is newly renovated.

How do people afford the renovations on a fixer-upper?
Some people use a renovation loan to cover the costs of fixing up their houses, which allows them to buy the home and finance repairs with one mortgage. Others may use a credit card, personal loan, home equity loan or home equity line of credit (HELOC), or personal savings to pay for renovation costs.

The bottom line on buying a fixer-upper as your first home

One of the most important things you can do when buying a fixer-upper as your first home is to set realistic expectations.

Go into the purchase knowing the house won’t be perfect right away – maybe not even for a while. Ask yourself if you’re okay with working on the house over time or having part of the property be a construction zone when you first move in.

Know, too, that fixer-uppers come with quirks. If you plan to renovate yourself over the course of several years, expect issues to crop up, especially if you have old plumbing or outdated appliances. Consider keeping a savings account just for home repairs, because you’re probably going to need them.

But remember the flip side as well. Buying a fixer-upper as your first home isn’t the easiest route to take as a homebuyer. It is rewarding, however, and it can enable you to purchase a home and start building equity sooner than you would otherwise.

Start your home-buying journey here.

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*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.

**USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits. Fairway is not affiliated with any government agencies. These materials are not from USDA or RD and were not approved by USDA or RD or any other government agency.

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