What to look out for when buying a cheap fixer upper home

June 1, 2022 - 7 min read

Is DIY home buying a good idea?

As the housing inventory deficit continues, borrowers need to get creative in their search — especially at the starter home level.

Odds are, you’ve watched several of the do-it-yourself or fix-and-flip shows that have become ubiquitous on TV. At some point, you probably even thought, “I should do this too!”

Choosing the fixer-upper route gives you the opportunity to design and create a home to your liking. But before taking the plunge, there’s a list of red flags you should look out for in order to avoid buying a money pit, as well as issues that may not be as bad as they seem.

Verify your home buying eligibility. Start here

Four deal breakers when buying a fixer-upper

Either by choice due to sky-high home price growth or out of necessity due to the lack of available listings, many home buyers are setting their sights toward fixer-uppers.

However, if you buy the wrong fixer-upper because you didn’t see the red flags, you could end up spending as much as or more than a move-in-ready house. Being able to spot those hidden costs could save a ton of time, money and frustration down the road.

To avoid getting burned, we got expert insights on the most important ‘watch-out’ factors for this property type.

1. Structural damage

Scott Langmack, COO at Kukun

“The big one is any structural problem, which often happens through dry rot. Dry rot occurs typically when there’s some sort of small and typically not-even-noticeable cracks in the siding of the house or somewhere around a bathroom where moisture gets in.

“It’s the biggest single problem you can have because you could get to a point where you essentially have to rebuild the house.”

–Scott Langmack, COO at Kukun

The wood then expands and contracts over time as it dries out, weakening the structural integrity. Dry rot is like cancer in a home. It’s the biggest single problem you can have because you could get to a point where you essentially have to rebuild the house.”

2. Foundational problems

Kasey Decker, realtor at 1Look Real Estate

“You have to be able to see if the foundation is good. If it’s bad, then it doesn’t matter how much you put into it because it’s going to forever be a money pit. Check for termites. I always suggest an inspection and I will usually bring our contractor for my buyers, to have somebody who can point out how much work it will take to fix something.

You need to make sure you’re aware of just how much money it will take to get the house to where you want to live in it. Then you can do other projects, like floors, paints and remodeling kitchens.”

3. Old plumbing

Scott Langmack, COO at Kukun

“Older houses very often use galvanized steel pipes, which corrode over time and all need to be replaced at some point. Replacing the plumbing gets to be really expensive because you’ve got to go up the walls for every bathroom and shower. Sometimes the showers don’t have easy access points, which means removing wallboard or peeling off tiles. It’s a major project.

To determine whether you have a pipe problem is primarily by the flow where the water pressure is going to be at its worst. Check shower and bathtubs because those are the pipes that need the most volume. If the flow is not good, then you have pipes that are starting to shift in age. You should also look for water spots on the ceiling because galvanized pipes will often crack and leak.”

4. Outdated electrical

Scott Langmack, COO at Kukun

“Electrical problems are typically for homes 40 years ago or older. And there’s two dimensions of the problem: do they have the right amperage — the amount of electricity designed to come into the house — and do they have aluminum wire. Aluminum wire is terrible and never lasts.

Look at all the electrical connecting points to see what era they’re from. If there are any ancient switches, then you should call an electrician before you do anything with that house.”

Non-issues when buying a cheap fixer-upper

On the flip side, some homes may have smaller and more easily fixed issues that will drive away less-savvy potential buyers. These problems might not be as big of a deal as they seem and could be resolved through aesthetic repair, small budgets and/or short timelines.

Knowing whether or not an inspection issue or outdated feature is redeemable could be the difference between finding a bargain or continuing to search in a tight housing market.

“Get the house for the right price, include the renovations in your loan, and you’ll go from ‘worst to first’ on the very item that is scaring everyone else away.”

–Jeff Philbin, branch manager at PrimeLending

Jeff Philibin, branch manager at PrimeLending

“Galley kitchens, rotten decks, wet basements, leaking roofs... We see it all the time where people walk away from a terrible kitchen only to have a renovator come in and open the whole floor plan, install a new one and have the great open-concept everyone else was looking for — with a kitchen they got to choose for themselves.

As long as the price reflects the work needed, you can move forward with this and do the repair right after closing. Get the house for the right price, include the renovations in your loan, and you’ll go from ‘worst to first’ on the very item that is scaring everyone else away. They see a mess, you see a new roof, new furnace or shiny bathroom.”

Kasey Decker, realtor at 1Look Real Estate

“Nine times out of 10, water damage on the ceiling will be fixed with a new roof. I just replaced the roof on my house for $6,000, which is a lot of money but way less than bigger problems. Then you can paint the ceiling to fix the watermarks.

Floors are another one. A lot of times there’s hardwood under those bad carpets and linoleum. It can also feel like a big deal when you’re walking through and feel the floor give. But you can usually fix any soft spots by getting down into the basement crawlspace and replacing the damaged truss.”

Scott Langmack, COO at Kukun

“Rodent infestation is common amongst homes that aren’t being taken care of. But it’s really easy to fix professionally in a few weeks. An exterminator will take out whatever dead carcasses there are and seal up all the holes.

Another one is surface mold. It looks terrible but you can take that drywall off, you can peel up that carpet. It’s just a matter of clearing out junk and still having a solid home to work with. The mold you don’t want to deal with is black mold because there’s no easy treatment. It’s been in the walls for a long time and seeped deep into the wood.”

Verify your home buying eligibility. Start here

The best fixer-upper home loans

The benefit of buying a fixer-upper at the right price is that it offers a blank slate and allows you to replicate your favorite room designs.

Financing for these homes has become easier in recent years, too. You used to need one mortgage to buy a fixer-upper and then another one to renovate it. Fortunately for today’s borrowers, lenders have since developed all-in-one options for financing a fixer-upper.

A few examples of fixer-upper home loans include:

Just like with any other kind of borrowing, choosing between these options depends on your credit score, down payment amount and budget.

Jeff Philibin, branch manager at PrimeLending

“The family of loans called “Renovation Loans” are best for fixer-uppers. Loans like the Fannie Mae Homestyle, the Freddie Mac Choice and the FHA 203(k) are all geared toward properties that would not ordinarily pass a standard appraisal. They allow you to purchase and renovate almost any house, which opens a lot of doors (literally)!”

Advice for buying a fixer-upper home

When deciding on a fixer-upper, it’s important to think about two things: what the property currently is and what it could be. In such a red-hot housing market with limited choices, extremely short on-market times, and multiple bids above asking price, buying a property in need of renovation can actually be a prudent option.

“This is a market unlike any I’ve seen in 35 years. These properties with potential could be exactly what you’re looking for if you have the vision and financing to put it all together.”

-Jeff Philibin, branch manager at PrimeLending

Of course, you should be realistic with your budget, timeline and what level of DIY you are comfortable with.

Kasey Decker, realtor at 1Look Real Estate

“A lot of people go into it thinking, ‘I could fix that up, I see those shows on HGTV, it can’t be that hard.’ But you can’t just renovate the kitchen, there are a lot of steps and this stuff takes a long time — especially in this market with contractors as busy as ever and supply chain issues.

Make sure you trust both your realtor and your lender to give you advice. They can guide you and help you mind your budget. Lastly, it’s worth it to do renovations right the first time, because it is always more expensive to fix it after you’ve done it wrong.”

Jeff Philibin, branch manager at PrimeLending

“This is a market unlike any I’ve seen in 35 years. These properties with potential could be exactly what you’re looking for if you have the vision and financing to put it all together. Instead of getting into a bidding war and paying a premium for a house that still may not be your ideal, consider looking below your budget and leaving room to renovate. Allowing a $50k-$100k cushion allows you to look at many previously invisible options.”

The bottom line for home buyers

Buying a fixer-upper could be the best way to navigate 2022’s housing market and sidestep some of the fierce competition. If it sounds like the right path to homeownership for you, get started today.

Reach out to local lenders and realtors to find ones who can help you through the process, renovation costs, and which mortgage types you’re eligible for.

Time to make a move? Let us find the right mortgage for you

Paul Centopani
Authored By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.