By Regina Wood
Stories, whether true or false, have a way of allowing us to believe, dream and share with others. Homes are a lot like stories. We are invited in through the cover. They give us space to dream. They allow us to share the good times and bad with those who mean the most to us.
When shopping for a home, there are always some contenders — the new kid on the block, some “absolutely-nots” and some that evoke memories of your grandma’s house. If you’re like me, you see potential in grandma’s house but aren’t sure how to make it happen financially. Here are some key steps to buying your fixer-upper.
First, it’s important to talk with your lender about a home-improvement loan. This type of loan requires extra time within the contract so you can enlist a licensed contractor to help navigate necessary permits, building codes and cost estimates. Like humans, when you change the layout of the bones, it is a serious matter.
Secondly, by providing the proposed renovations to your lender, you are ensuring the appraiser will have the best understanding to value the improvements. Typically, this type of loan has an interest-only payment and then converts to a traditional mortgage loan within a certain time frame. The loan amount would provide up to a certain percentage of the appraisal, hopefully covering the cost of purchase plus renovations.
Finally, know your numbers. If you decide to borrow for any home purchase, it is wise to know your credit standing. Reports from TransUnion, Experian and Equifax are available yearly from www.annualcreditreport.com. Another number to know is your debt-to-income ratio. This is the amount of monthly scheduled debt payments divided by the total amount of monthly income.
Also important to consider is the expected value of the as-yet-completed appraisal based on the proposed purchase and renovations. By having a thorough discussion with your Realtor about recent sales in the area, you can be mindful of the renovation budget — therefore having a good understanding of the maximum amount the lender may approve. No one goes into homeownership wanting to overpay for their potentially most valuable asset.
Remember, every home has potential — and a story. If the walls could talk, they would want someone to believe in them, to love them and to share with them.
Regina Wood is an Accredited Financial Counselor® with 17 years of financial experience. Reach her at email@example.com.