Buy a Fixer Upper or Move In Ready

A fixer-upper is a home that’s on sale for less than others that are similar in the area because it needs a decent amount of renovations, remodeling or repairs. In most cases, you don’t live in your fixer-upper right away; instead, it may be easier to live somewhere else while you work on the home.

The cost of a move-in-ready home is usually on par with similar homes in the area, but can be more expensive, depending on what the home offers. It means a home is ready to move into right after closing.

Pros and cons of a fixer-upper

“There are so many customization options with the finishes and design,” said Michaela Green, a real estate agent in the greater Houston area. “You can change the layout of the home to fit your needs.”

Pros

• Less expensive up-front costs. Most fixer-uppers are cheaper than other similar homes in the area because they aren’t ready to move into yet. The more repairs a home needs, the less expensive it usually is.
• More creativity and exploration. Fixer-uppers give you a chance to create a dream home without waiting to find land to build it on. You have more opportunities to craft what you want out of a home and not necessarily rely on someone else’s vision.

Cons

• Not livable. Most fixer-uppers aren’t ready for you to live in right away. Depending on how many renovations they need, you could be out of your home for a few weeks, months or even longer. That means paying for a place to live on top of the mortgage on your fixer-upper.
• Not always available. Fixer-uppers might not exist where you’re exploring home ownership. For instance, you might find that the neighborhood you want to live in doesn’t have many options, if any at all. And if you do find one, it’s in an area you aren’t interested in living in.
• More long-term expenses. Even though you’re spending (or borrowing) less on a home loan, you’re on the hook for more expensive renovations and repair costs. You might end up spending more than you anticipated or can afford to, due to repairs that weren’t evident before the purchase.

Pros and cons of move-in-ready

“You can move in right away and won’t have to spend money to fix the home,” Green said. “If you are borrowing, this helps as well because you won’t have to put any cash up front to make changes.”

Pros

• Easy move-in. The whole point of move-in ready is that the home is ready for you to live in it when you buy it. You don’t have to wait for repairs or costly renovations and, instead, you can get comfortable right away.
• You know the cost. Aside from negotiations, you know how much the home will cost because you don’t expect any major changes that would cost you extra. The price is predictable so you don’t have to pay more than your budget allows.

Cons

• Not fully customizable. While you can change a layout, paint walls and even do some minor touch-ups, a move-in-ready home is limited in customizations. Most of the time, you get what a previous owner put in and those decisions aren’t made with you in mind.
• More expensive. Move-in-ready homes tend to be more expensive than fixer-uppers because they’re ready for you to live in. That means a larger home loan or more out-of-pocket costs compared to fixer-uppers.

Cost to renovate a fixer-upper

Your budget determines how much home you can afford. In the case of fixer-uppers, that not only means how much you can take out in a home loan, but also how much you’ll need to cover renovation costs—and those can vary a lot.

“The biggest costs are roofing, foundation and finishes,” Green said. You can easily sink in more than $100,000 between these major fixes, and that’s not including any other repairs or improvements. For instance, replacing old and outdated electrical panels, changing out plumbing or changing the flooring. The more you want to replace in a fixer-upper, the more expensive it’ll be.

Are move-in-ready homes more expensive than fixer-uppers?

In most cases, move-in-ready homes have more up-front costs than fixer-uppers. The less money you have to put into fixing up the home, the less you’ll need to borrow in a home loan.

“Move-in-ready homes are often more expensive,” Green said. “Move-in-ready homes are a bit more to purchase since they are, in fact, turn-key ready.”

But that doesn’t mean move-in-ready homes always cost more. There’s a chance you could end up forking over so much in a fixer-upper that it’ll cost you more than what you would’ve paid for a move-in-ready home.

How to shop around for a fixer-upper

It’s important to research each home you’re buying before deciding to put in an offer.

Make sure you do your due diligence on any potential purchase by getting an inspection, comparing the home to others on the market or that have recently sold, and estimate how much money you’ll put into the home after you buy it.

Give yourself a decent buffer, just in case anything comes up and you need to cover other costs. This could be walls or flooring you weren’t planning on touching, or even paying for the regular materials you estimated, but the cost of which has gone up. Plan far enough in advance that any surprises won’t burden you.

How to finance a fixer-upper home

Fixer-uppers don’t always have the same financing options as move-in-ready homes. For move-in ready, you can take out a traditional mortgage, like FHA, VA, USDA or conventional loans. For fixer-uppers, you might need to take a different route.

• FHA 203(k) Rehabilitation loans: This option comes from the Department of Housing and Urban Development. You have two choices with a rehab loan, including the standard 203(k) mortgage, which lets you finance repairs of at least $5,000. The Limited 203(k) mortgage lets you finance up to $35,000 in repairs.
• VA loan: You can use a VA loan for repairs and renovations as well as your traditional home loan. Loans offered by the Department of Veterans Affairs are only available to service members, veterans and surviving spouses of veterans.
• Fannie Mae HomeStyle loan: These loans can finance up to 75% of the assessed home value and can be used for any home-related project, including major additions or structural changes to the home.

Bottom line

The type of home you buy is an important decision early in your home-buying process. If you want to create a home as close to your vision as possible and you don’t mind not living in it for a while, a fixer-upper might work for you.

But fixer-uppers aren’t for everyone. If you want something you can live in right away and you can afford a larger mortgage, a move-in-ready home might be best for you.