August 2, 2011
Considering the Fixer-Upper as Your First-Time Home Purchase
Buy Low Now, Sell High Later
Despite impending whispers of interest rates on the rise, home prices are not going down. The Royal Bank of Canada’s most current Housing Trends and Affordability Report found that these ascending property values are actually lessening home ownership affordability for buyers.
This coupled with the tightening of mortgage rules and mortgage insurance criteria, it’s getting tougher for those still renting to enter into the market. The shave down from 35-year maximum allowable amortizations to 30-years has cut about six to seven per cent off the allowable purchase price a buyer is approved the financing to receive.
Esteemed economist Benjamin Tal says that central bankers and policy makers will continue to make conservative changes to mortgage rates so long as the market remains in its present uncertain state.
The Fed is not even dreaming of raising rates in the next 12 months,î he told an audience at the Dominion Lending Centre’s national conference. Closely tied to the U.S. market, the Bank of Canada is likely to act similarly.
So how can first-time home buyers still get in on these low, somewhat consistent, rates with market affordability on the descent? While the majority state they will look to the condo market, another consideration worth positing is the fixer-upper starter home.
The fixer-upper home involves a lot more work and budgeting than would buying a condo, but the payoff can be substantially higher. Before you begin, heed some caution and be sure to include the following steps in your potential buying process:
Property Assessment: Before you can determine whether the workload this home requires will be worth the investment, you must have a concrete outline of what needs to be done and how much this will cost. You may make labour deductions on tasks that you can complete yourself or with help, but be liberal when ascertaining prices. You also need a clear scope of what the property is worth in the condition it is now, and what it could be worth after the renovations. Your realtor will need complete an in-depth market analysis of other homes in the area that have sold recently with the features and upgrades you intend to put in.
Bargain Hard: After the property analysis you will have a better idea of what the property is worth if repaired. From that number you need deduct your liberal renovation costs as well as an additional five to 15 per cent to cover any extras or unforeseen problems that may arise, as well inflation. This is the value you can offer, pending that both a financing and inspection clause are written into the offer contract.
Get Pre-Approved: Even though the home that needs some TLC is significantly cheaper than its spiffy neighbour, pricing in the needed upgrades could still price you out of this property. It is time to get a clear vision of your financing with a no-cost mortgage pre-approval. Your best bet is to attain a Purchase Plus Improvements mortgage. With a high credit score, you can attain this mortgage with as little as no money down, plus be allotted the cash you need to get necessary upgrade work underway.
Home Inspection: You have, to the best of your ability, already added up the work that needs to be done. Now it is time to have the property thoroughly inspected to see how close to the mark you are, and what you may have missed. Often is the case, especially with older properties, that in addition to calling in a home inspector you will need to have some professionals take a look at the intrinsic elements of the property to provide you with quotes as accurate as possible. This may include an electrician, plumber, roofer, carpenter, landscaper, and/or foundation specialist. If the home owner seems interested in your offer, try to negotiate that they cover the cost to have these professionals come out, or at least split it with you.
Evaluate the Payoff: Now that you have been approved for financing and received a solid number from which you can work with, it is time to decide if the outcome from the inspection is in line with your calculations and your budget. Experts recommend that if the home involves significant structural revamp, the cost to facilitate these fixes will not raise the property value enough to warrant the purchase. You can always try to renegotiate your offer to deduct for repairs you had missed, or walk away from the offer all together. Remember that cosmetic fixes are much cheaper and offer a faster, easier payoff than do structural repairs. Also keep in mind your location. If property value is going to stagnate in this area, improving the market value of the home significantly may price it out of its neighbourhood and make it a hindrance to sell.
The decision to purchase a fixer-upper makes an already difficult choice even harder. Overall, if the property is in a good location among well taken care of properties, and renovations are mainly in the realm of fresh paint, new flooring, an extra bathroom, a kitchen facelift and some outdoor refinishing, you could be in good business. If you are looking at a new furnace, major plumbing or electrical overhauls, and foundation damage, youíre most likely better off to keep on looking.
This article was provided by CanEquity.com.