Sep 21 2008
Financing a Fixer Upper
When you are looking for an old home that needs renovating, financing can be a bit of a challenge. Low down payment mortgages for a fixer upper were hard to find before the mortgage crisis. Now, they are definitely not a possibility. Plan to put down at least 20 percent on your fixer upper to qualify for a mortgage. You may need to finance construction costs, too.
Some people get around the mortgage issue by taking out a home equity loan on a current home and paying cash for their new old house. This can be risky, since most people who do this are planning to sell the first home fairly quickly to stop paying a seven to ten percent interest rate on the home equity loan. Since your first home may lose value in the flucuating real estate market, you may not be able to sell it for enough money to pay off your mortgage and your new home equity loan.
Getting a personal loan from a friend or private investor is another option. In this case, you may still be paying a slightly higher than normal interest rate, but you won’t need to worry about the value of two homes. Just be sure to have a lawyer help with the contract and don’t agree to variable interest rates or stressful short term loans.
The best solution? Pay cash. If you find a nice area with really inexpensive homes, you may be able to avoid dealing with a mortgage all together. I’ve seen homes in small towns for as little as $30,000 and homes in cities for $7,000 or less. Just be sure to really research the area, since the cheapest home on earth isn’t very useful if the neighborhood is too dangerous (or too smelly) to live in.
