The half million dollar fixer-upper
Early on our search, we had to give up on the dream of finding a fixer-upper for our first house. This old standby strategy for first-time homebuyers has really taken a beating from the stratospheric climb in home prices since the late 90s. And the recent credit crunch just might finish it off.
Sure, we ran across a lot of fixer-uppers in our search -- in a region full of old houses, that's hardly surprising. The shocking thing is how much they cost. Typical was a place in Watertown that badly needed new windows, complete updating of both baths, significant exterior repairs and painting, and more. It was priced at $575,000. After calculating the likely tab to bring the place to livable condition, we nearly fled.
Okay, suppose the place was overpriced and we could have bought it for $500,000 -- a typical price for a modest single-family these days. Still no deal. After the steep down payment increasingly required by lenders -- a minimum of 10% in most cases -- exactly where would we come up with over $40,000 for the "fixer-uppering?" Certainly not in cash. A home equity loan or line of credit right off the bat? Not likely in this credit market.
Perhaps it's too soon to declare the death of the fixer-upper for all but those who can remodel a bathroom with their own two hands. But you have to wonder.
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For a state chock-full of old houses, Mass. certainly has a lot of buyers who are very dumb about what it costs to update a fixer-upper. For the past few years, people have rushed to throw down offers backed by funny mortgages, only to learn later they can't afford what they just bought. My favorite was a lovely but decrepit open house where one prospective buyer told me he thought it would take $40K to fix. A contractor later came in and gave an estimate of $250K.