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Fixer-uppers are an affordable option, if you are up for the work

Even if you’ve never swung a hammer, renovations can be the key to cutting costs. (stephanie wunderlich)

When your budget as a first-time buyer doesn’t stretch to a house in perfect condition in a neighborhood you adore, you might consider buying a home that needs work. Or maybe you’ve watched fixer-upper TV shows and think you could handle sweat equity. Either way, real estate experts say buying a house that needs renovating can make sense as long as you are realistic about the process.

“A fixer-upper can be a great idea for a first-time buyer, especially in pricey neighborhoods where renovated places are too expensive or not available,” says Ati Okelo Williams, a real estate broker and owner of DC Home Buzz.

Home buyers who can’t tell the difference between a hammer and a wrench needn’t be afraid of fixer-uppers. While knowing how to fix a leaky pipe is helpful, experts suggest that time management and organizational skills are more important. The key is to be realistic about what’s required to fix a property, Williams says.

“The people who are best at fixer-uppers are not necessarily skilled at DIY projects, but they are resourceful and organized,” she says. “Start by getting a general sense of how to talk to contractors by watching ‘This Old House,’ and then get good bids.”

Pros and cons of a fixer. A fixer-upper can be a smart investment, particularly if you can buy a property under market value and then increase its value with the right projects, says Sean Anthony, a real estate agent with Howard Hanna Realty Pioneers.

While some home buyers prefer move-in-ready homes, they are stuck with the choices the previous homeowner or builder picked for their countertops, fixtures and floors. Not only do buyers of fixer-uppers get to select their finishes, they also can make sure the work is done the way they want.

“Buying a fixer-upper that needs new floors, a new kitchen, a new bathroom and paint is great because even if you make a mistake at first, those things are easy to fix,” Williams says.

Structural changes such as foundation repairs or plumbing overhauls are not as easy to fix and can be more complex projects than swapping out cabinets, appliances and countertops.

Fixer-uppers aren’t for everyone.

“Expect to spend date nights at Home Depot,” Williams says. “Don’t underestimate how much time and money a renovation costs.”

What to consider when deciding whether to rent or buy a home

Finding reliable, expert help can be challenging when you haven’t owned a home.

“You need to make sure you have really good contractors, an experienced real estate agent and a good lender who all know what they’re doing,” says Sue Pullen, senior mortgage adviser with Fairway Independent Mortgage.

Pullen recommends digging deep into a contractor’s reputation and checking for licenses and complaints.

“It’s important to really understand what you’re getting into before you do it,” Pullen says. “Don’t do any upgrades that won’t add value to your house, and don’t over-improve the house for the neighborhood. A real estate agent can help you with that.”

What to know before you buy. When buying a fixer-upper, Anthony recommends hiring an experienced home inspector to write a detailed report on a house you’re considering. Bringing a contractor along when you visit houses can give you a realistic idea about what work is required and what it might cost.

Before making an offer, figure out how much it will cost to do the necessary work. Be sure to add in a cushion of 5 to 10 percent for unforeseen problems. Subtract the cost from what you think the house’s market value will be after the renovation. Your offer should be no more than the difference between the two.

Location, location, location: Picking the right neighborhood when searching for a home

Anthony says YouTube videos can be a great way to teach yourself how to do simple projects such as removing wallpaper or caulking a tub. Bigger projects such as installing new appliances or replacing a shower should be left to a contractor.

Williams recommends several resources for finding contractors:

  • id="U124022142097579hE">, which provides contractor reviews and allows bids for specific projects.
  • id="U124022142097576tB">, an online marketplace that matches contractors and homeowners.
  • id="U12402214209757kZB">Hyperlocal neighborhood listservs.
  • id="U124022142097574LF"> Referrals from friends.

“Once you’ve identified one or more contractors, check their references, and go to their current job site,” Williams says. “If it’s organized and clean and they don’t have trash or junk in their truck, that’s a good sign.”

Get at least three bids for your work, and compare them based on the reputations of the contractors and the proposed timelines, not just the price. Make sure to get everything, particularly the scope of work and price, in writing.

How to finance your renovation. Finding the right contractor can sometimes be easier if you finance your purchase and remodel with a renovation loan because lenders can often recommend contractors who have worked with other borrowers.

In the market for a home in D.C. but don’t have a mint? Hello, fixer-upper.

Fannie Mae Homestyle renovation loans and Federal Housing Administration 203(k) loans are two good options for first-time buyers.

The limited FHA 203(k) loan has a maximum of $35,000 for repairs, which must be cosmetic rather than structural. The standard FHA 203(k) loan is for more costly projects and structural renovations.

“The standard 203(k) loan costs a little more and requires you to have a HUD consultant work with you,” Pullen says.

Qualifying for an FHA 203(k) loan is similar to other FHA loans, which have slightly looser guidelines than conventional loan programs, Pullen says. The loan requires a 3.5 percent down payment, an additional fee based on the loan amount for the renovation and both upfront mortgage insurance and annual mortgage insurance. The fee and the upfront mortgage insurance can be wrapped into the loan balance. Interest rates on FHA renovation loans tend to be about a half percent higher than rates on a standard FHA loan.

“The Homestyle renovation loan is a good option for borrowers who can qualify,” Pullen says. “The guidelines are a little more stringent than for the FHA loan, but the loan is more lenient about the projects you can finance than the limited FHA loan.”

Wrapping your renovation costs into a 30-year fixed-rate loan can make the expense far more manageable, especially for a first-time buyer on a limited budget.

“I’m a huge fan of livable fixer-uppers, places with solid bones that are just kind of ugly and need some cosmetic work,” Williams says.

Finding that diamond in the rough may not be easy, but for some first-time buyers, it’s a challenge worth accepting.

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Buying a home? Let a real estate agent guide you to your destination.

Location, location, location: Picking the right neighborhood when searching for a home

Making an offer to a seller that nets you your dream home

Closing time: The process that turns a home seeker into a homeowner

Just bought your first home? Here’s what to do next.

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Real estate vocabulary: Words you need to know before buying your first home