NEW YORK – Dec. 12, 2018 – It's the lament of first-time homebuyers in just about every housing market: There aren't enough entry-level homes available that are move-in ready.
One solution is to broaden the search to fixer-uppers. With a renovation mortgage, you can get one home loan that combines the purchase price with the cost of improvements.
Not enough affordable homes
Entry-level homes are scarce, whether new or used. Most gains in housing inventory have been in upscale homes, according to Realtor.com.
The decline in entry-level new construction is stark: 36 percent of homes built in 2000 had under 1,800 square feet; in 2017, 22 percent did, according to the Harvard Joint Center for Housing Studies.
As for existing homes, resales of homes costing $100,000 to $250,000 were down 1.9 percent in October, compared with a year earlier, according to the National Association of Realtors. The demand is there: Even with the decline, homes in that price range accounted for 40.2 percent of sales.
Faced with a shortage of affordable homes, it makes sense to consider buying and fixing up dwellings that are outdated or in need of repair.
The two major types of renovation loans are the FHA 203(k) loan, insured by the Federal Housing Administration (FHA), and the HomeStyle loan, guaranteed by Fannie Mae. Both cover most home improvements, whether major or minor.
"Basically, every kind of repair that can be done to a property, we do it," says Brad McMullen, vice president of renovation lending for PrimeLending, a national mortgage lender that emphasizes renovation loans.