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Find Your Dream Home In The Rough

HEROJust because the median price of a single-family home is pushing $750,000, doesn’t mean your dream home in the perfect neighborhood is unattainable. It simply means it’s time to think outside the box. One great way to do that is to shop for a fixer-upper.

Buying a fixer-upper typically means compromising on your new home’s condition, at least temporarily. Finding the right fixer-upper is like discovering a diamond in the rough. Homes that need polishing are often overlooked yet can allow you to buy bigger or in a better neighborhood than you could otherwise afford. A fixer-upper could be your dream home in the rough.

Of course, you need to shop with your eyes wide open. Some homes are dilapidated beyond help, but many others, those diamonds in the rough, offer a great opportunity. Finding such a home in your favorite neighborhood for below market value is exciting, but ensuring that your fixer-upper pays off in the end requires careful planning.

STEP 1: Before shopping for any home, start by knowing how much you can afford. Outline up front how to make the initial purchase and how to pay for the improvements — it needs to all be part of a master plan.

Keep in mind, improvements can be made over time with a home equity line of credit. A personal banker at First Hawaiian Bank will assess your financial situation, discuss with you the possibilities and can prequalify you for a loan amount. This will allow you to confidently shop for a fixer-upper within your budget.

“Usually, fixer-uppers are financed through an existing equity line or a mortgage on another property, not the subject property, however a construction loan can be attained,” says Elina Grugier-Bell, Assistant Vice President and Manager of First Hawaiian Bank’s Mortgage Banking Department.

“Financing a fixer-upper can be a bit tricky, as the appraisal is a key piece to all real estate loans. Is the seller selling the home as a fixer-upper? What is the nature of the needed improvements? Are they structural, roof related, termite damage, etc.? Or are they cosmetic improvements, such as paint, carpet, cabinetry?

If there are structural issues, that is more complicated. If the home just needs a face lift, you can possibly do that with an equity line and make the improvements over time,” she adds.

STEP 2: You’ll need a Realtor. Real estate professionals bring experience to the table in any real-estate transaction. With a fixer-upper, they can tell you what the comparable market value is in the neighborhood in order for you to make a reasonable, below-market-value offer.

STEP 3: Plan to hire a home inspector and probably a contractor to give you a comprehensive list of what repairs are needed and to provide an estimate of all costs for the renovations. Make sure the estimates include materials and labor (and any permits needed). Listen to your contractor’s recommendations — if the home needs major structural work or has other significant problems, it may be too costly, and therefore too risky an undertaking. Of course the best-case scenario is a home that requires mostly cosmetic fixes.

“Hire a reputable, qualified and licensed home inspector,” says Grugier-Bell.

Once you have an all-inclusive list of repair costs, you’ll be able to make an informed offer. Your offer, along with the cost of repairs, should be below market value. In fact, it should still net you a significant savings. After all, you are doing the legwork and making the necessary improvements. Give yourself liberal credit for unforeseen problems.

Fixer-uppers require extra work and time, no question about it. “Because of the challenges related to fixer-uppers, I would not recommend this route for first-time home buyers unless they have a lot of equity in the property,” Grugier-Bell adds. “It may be too big to bite off your first time around.”

To see how you can purchase your dream home in the rough, talk to a personal banker at First Hawaiian Bank.

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