Nov 8, 2021
The Financial Costs of Purchasing an Old Home
When you’re looking to move into an older home, there are significant financial costs that will come with it. Not only are you now responsible for a mortgage and everything that comes with homeownership, you have to consider the costs of maintenance and upgrades. Here are some key things to be informed about before you make the big purchase on an older home.
Financial Considerations of Purchasing an Older Home
Because older homes were once owned by someone else, the condition of the home will likely require various financial considerations up front before you move in and continually as you live there. Here are some of them:
Home Inspection Fees
With an older house, getting a home inspection is crucial. Since building regulations change over the years, you want to ensure that your home is safe to move into and that the inspector is experienced. External or internal damage from natural disasters or man-made accidents can impact the safety of your home. This includes things like deterioration or rotting in the home’s foundation, the proper functioning of electrical and drainage systems, the presence of asbestos, lead, mold, and more. If any of these things are detected or another major problem is uncovered, it will need to be rectified immediately and prior to move-in.
The typical lore around purchasing and owning a home is how expensive it is. One day everything’s fine, and the next, a pipe has mysteriously burst and you’re hundreds or thousands of dollars in the hole unexpectedly. This may deter some potential homebuyers, but for many, it’s just an expected part of homeownership. How does one prepare for the potential maintenance costs that come with purchasing a home… especially an older one? Budgeting 1-3% of your home’s purchase price per year is the typical starting range. If you know you’re going to be purchasing an older home from the get go, it’s best to budget that amount ahead of time, since the home inspection may bring up things that need money sooner rather than later.
Aesthetic remodeling is each homeowner’s personal choice, but remodeling various parts of an older house can bring with it its own costs, depending on what area you want to remodel. Based on how extensive your plans are, the prices will be vastly different. When remodeling a house, you’ll want to make sure everything is up to code before starting, despite your desire to follow every whim of your remodeling dreams.
How Can I Get Help With These Costs?
If you are looking to purchase a home, especially one that needs a bit of remodeling, there are loans that can help you do it in a way that doesn’t sink your bank account. While there are a plethora of different options, you can decide for your financial life and lifestyle which option will work best for you.
FHA 203(K) Loan
An FHA 203(K) loan not only includes the cost of the house, but additional repairs and renovations, making this loan choice a wise investment. The caveat to this loan is that you can’t DIY this option. You have to hire a professional contractor and you must know what you’re going to repair beforehand. These fixes are diligently monitored, so if you’re willing to go through the planning and paperwork process, this loan will be worth it.
A construction loan may be used to renovate a home, but they aren’t expressly used for that purpose to begin with, making them more of a risk. Construction loans are typically used for a house that you’re building from scratch, not one that you’re purchasing for renovations. They also have higher costs and lots of red tape to run through. Therefore, this may not be the best option for the renovation of an older home.
A Conventional Loan
A conventional loan is one of the most popular loan types on the market today. If your credit score is low and you can’t afford as much of a down payment, a conventional loan may be a good option for you, as they are pretty flexible. There are different types of conventional loans, such as a FannieMae HomeStyle loan, which may provide different options for those with varying needs.
Budgeting With Cash or Line of Credit
These methods are simpler than securing a loan, such as saving for the cost up front to pay with in cash or using a line of credit for small repairs. (Lucky you!) For these, you would want to ensure that the cost won’t run away from you by getting an inspection beforehand, as what may seem like a small project could snowball into a larger one quickly if left unchecked. Check our line item list above to see if the areas of your home you want to remodel fit in with your budget.
Non-Financial Considerations That Cost You
Time is a large consideration for those who are considering purchasing a fixer upper. The average fixer upper takes a few months of time at the very least, and that’s if you have the time to dedicate to it pretty exclusively. It’s important to get a solid understanding of how much time you’ll be able to dedicate to the project. If you have other things happening in your life, the time frame can be even longer. Make sure to plan ahead!
Safety considerations can hobble your project’s time and finances. If they aren’t uncovered from the onset, they will not only cost you then, but later on when it’s a much larger problem. Therefore, it’s best to get these problems addressed as soon as possible by a home inspector.
While an old home may be a great choice for some future homeowners, it may not be right for others, for financial reasons and more. Another housing option for those who are looking for a new home is a new build home or a spec home. Spec homes are homes that are already built brand new and move-in ready. There are a variety of advantages to this type of home.
If the thought of renovating and purchasing an older home doesn’t appeal to you, new build and spec homes may be the perfect option for you. REA Scoop is a desktop and mobile app that provides you with all the resources you need to find the spec home of your dreams. View available move-in ready homes on the market and connect with your real estate agent all in one place. For more information, contact us today or download the app on Google Play or the App Store.
To view the entire infographic, click the image below.