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Homebuyer's dilemma: Should you purchase a home that needs repairs?

What we'll cover

  • Considerations when purchasing a home that needs repairs

  • Reviewing the home inspection report 

  • Different approaches for negotiating home repairs

You’re prepping to buy a home. You've worked out a budget, started scouting out properties and are shopping for mortgage options. But there's one scenario you might not be ready for: finding your dream home only to learn it needs some serious repairs.

You might be one of today’s buyers who are increasingly willing to spend to make a new home comfortable and livable. Case in point: 56% of millennials bought a home that required minor or major renovations in 2020, with nearly 70% setting their renovation budget at $25,000 or more.

Buying a home that needs some love isn't a bad thing, as you could get a great deal on the purchase price. But how do you decide where to draw the line on what's doable — and what's too much — when it comes to repairs?

Minor vs. major fixes

Once you make an offer on a home, it's a good idea to get a home inspection. The inspector will examine the property from top to bottom, looking for issues. They'll pass the findings on to you in the inspection report.

It's important to read this report carefully so you understand any minor or major repairs that may be needed. For example, minor repairs might include things like leaky faucets, windows or doors that stick or a light fixture that needs to be replaced. These typically don't cost much to fix and some minor repairs you can even do yourself.

On the other hand, you might need to spend considerably more time and money repairing issues such as:

  • Roof leaks

  • Faulty wiring or significant electrical issues

  • Major plumbing leaks

  • Inoperable HVAC systems

  • Cracked foundation

  • Damaged septic tank or septic lines

  • Termite infestations

  • Asbestos or lead paint

  • Mold or water damage

These usually require professional assistance. Plus, depending on the type of mortgage loan you're getting, you may need to address them before you can close, which could add a wrinkle to your plans.

Does the buyer or seller pay for home repairs?

If you're buying a home that needs repairs, you might be wondering who has to take out their checkbook. The good news is that home repairs are usually negotiable. You can take different approaches when it comes to handling repairs, such as:

  • Ask the seller to make repairs. This spares you the trouble and expense of making repairs yourself.

  • Request seller credit at the closing. This credit is a lump sum paid to you by the seller to cover repairs.

  • Ask for a home warranty. If the home you're buying needs repairs, but they aren't pressing, this can help with the cost of any major fixes you make after moving in.

When staring down a steep fix-it bill, negotiating with a seller to pay for fixes is the first step. This is something your real estate agent or broker can do on your behalf.

Keep in mind: Sellers aren't required to pay any repair costs. Even if they do agree, they may limit their financial responsibility to minor repairs. That means if you need a large fix, like a roof or HVAC replacement, you'll bear the full expense.

Run the numbers on repairs

Once it’s clear which repairs are officially on your plate, you can decide if it's worth moving ahead with the home purchase. It can be helpful to ask some key questions, like:

  • How much will the repairs cost altogether?

  • How long will it take to complete them and is the home livable in the meantime?

  • Can I do the repairs myself (or with my partner)  or will I need to hire a professional?

  • Where will the money to pay for repairs come from?

That last question is important if you're already parting with a sizable amount of cash to cover your down payment and closing costs. If buying a home leaves you short on cash, you may need to look into various ways to pay for home repairs or renovations and what works for your budget.

If you haven't determined how much your monthly mortgage payments will be yet, that's a good place to start. You can use our monthly mortgage payment calculator to estimate what you'll pay before deciding whether or not you can afford both the home and the repairs it needs.

Also, don't overlook the time factor. If you're doing repairs yourself, consider how quickly you'll be able to complete them. Even something simple can drag out for months if you're only able to work on it on the occasional night or weekend, for example.

The right mortgage can make repairs manageable

When buying a home that needs some TLC, getting the best mortgage rate possible can be a big help. Having a great credit score and working with a lender that doesn’t charge lender fees, like Ally Home, not only makes the path to homeownership easier, but can put home repairs within reach, too.

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