The COVID-19 pandemic has had a profound impact on the Boston housing market. Due to ongoing low interest rates, inventory remains scarce, causing fierce competition and a continued upward trend of home prices. This is forcing many hopeful buyers back to the drawing board when it comes to setting a budget and evaluating wants versus needs.
Move-in ready homes are being snatched up almost immediately and are selling for top-dollar, pricing out many first-time buyers. This is the reality for many hopeful buyers in popular areas such as Brookline and Cape Cod. Amid this low inventory environment, homebuyers are realizing their dream home might not be available and are becoming more open to other options. According to TD Bank’s recent survey of over 1,000 homebuyers purchasing their first home this year, 71% are looking for a starter home or fixer-upper, instead of a move-in ready forever home. Of these, 41% said it was because they needed to pursue a less expensive home due to the pandemic.
On the other hand, some buyers have been able to save big during the pandemic. Twenty-five percent of survey respondents say they’ve saved money by not traveling or dining out; the same percentage noted an increase in savings by having little to no commuting costs. This, coupled with extra free time due to ongoing remote work, might be encouraging buyers to put that extra cash toward making a fixer-upper into their dream home.
Although purchasing a fixer-upper is a great way to maximize a budget, homebuyers should know that taking one on isn’t as easy as the popular HGTV show of the same name makes it seem. With the spring renovation season officially upon us, there is a long list of considerations that should be carefully evaluated by first-time buyers before signing on the dotted line. While a fixer upper may seem like the cheaper option, renovation costs down the road can add up, and repairs often take longer than anticipated.
One of the most important things a realtor can do when a client is considering purchasing a fixer-upper is highlighting the unexpected. Taking on any sort of large-scale home renovation is filled with hidden costs that can quickly add up. A realtor should ensure buyers are taking often overlooked expenses into consideration. These could include the cost of obtaining permits, plumbing issues, unexpected pest or mold damage, issues with the roof or foundation, and more. Renovations also come with property tax implications, which buyers must be prepared for when they evaluate their budget against the total cost of home ownership long term.
Consult an Expert Early and Often
Engaging with experts early and often is crucial, especially for first-time buyers considering a fixer-upper. With this type of home purchase there are even more cost variables and unique lending options to consider. A realtor can help educate prospective buyers on these variables and point them to a lender who can advise on what type of mortgage is best suited to meet the buyer’s needs. Some lenders offer home loans specifically tailored to large-scale home renovations. Realtors should get familiar with these loan types and which lenders offer them.
Even though buying a home can be complicated, many first-time buyers aren’t seeking the help they need to navigate the homebuying and mortgage approval process. TD’s survey found that when asked about the best time to engage with a lender, nearly one third (30%) said they spoke with a lender after finding the home they want to buy. Further, 80% of respondents say they have not spoken with a lender yet, despite their intent to purchase a home this year. When considering a fixer-upper, meeting with financial experts early on will set the buyer up for success.
Both lenders and realtors will help lay down the financial foundation, balancing buyer expectations with a realistic purchase budget as well as a realistic renovation budget. They’ll also educate buyers on crucial aspects of the mortgage process, like paperwork, timelines, insurance, title and more. It can be complicated and potential buyers shouldn’t do it alone. Leveraging the experts will allow buyers to be successful in purchasing the perfect home for them.
Regional Mortgage Sales Manager | Massachusetts | [email protected]