Buying a fixer-upper is a great way to get a property for a low price to either flip or live in yourself. These properties can range from needing modernisation to essential repairs or upgrades, such as a new roof or electrical rewiring, to a complete overhaul. With this in mind, can you get a mortgage on a fixer-upper?
Why buy a fixer-upper?
Fixer-uppers have the potential to significantly increase in value once they’ve been renovated. This can make them an appealing investment option. Once a property has been renovated, you can either keep it as a rental investment or sell it for profit.
A fixer-upper is also a good way to buy a property cheaply for yourself. Not only can you save on the cost of buying a home but you can put your own stamp on it. If you’re a first-time buyer, a fixer-upper provides you with the opportunity to get on the property ladder when the prices of other properties are out of your reach.
Can you get a mortgage on a fixer-upper?
You may have heard of the term ‘fixer-upper mortgage’. This refers to a type of mortgage that provides you with funds to buy a property and then renovate it. This is different from a standard mortgage, which only finances the property purchase.
Despite the term ‘fixer-upper mortgage’, this isn’t a specific mortgage. It’s a general term used to convey the need to finance both the purchase and the renovation work. As such, there are different ways to finance the purchase of a fixer-upper property. The option you need will depend on the extent of work required on the property and your intentions for it.
How to buy a fixer-upper
Every renovation project is different, from the work involved to your plans for the property once the work is finished. Different financing options are available to meet different needs, as detailed below.
Use a standard mortgage
If the property is habitable, one option is to apply for a standard mortgage. This allows you to buy it and move in as is. You can then carry out the work over time when you have the money to do so. Alternatively, you can apply for an additional loan at the same time as the mortgage to cover the renovation work. If you are able to wait until you’ve built up some equity in your property before you renovate, two options to consider at that point are a remortgage or a further advance. Both of these allow you to raise additional funds for work needed on your property.
Remortgage an existing property
If you already own a property, you can remortgage it to raise the funds for a fixer-upper. This means changing the current mortgage on your existing property to a new mortgage with a new lender. Doing so enables you to release the equity from the property to buy and renovate a fixer-upper.
Take out a further advance on an existing property
Another option if you have an existing property with equity in it is to take out a further advance. This means taking out an additional loan to your current mortgage with the same lender. This is a good idea if you don’t want to change your current mortgage deal and lender, which you would have to do with a remortgage. A further advance can be used to buy the fixer-upper and then renovate it.
Alternatives to a mortgage on a fixer-upper
If a standard mortgage isn’t suitable for you and you’re not in a position to remortgage or take out a further advance, there are some alternatives to consider.
Bridging finance
Many lenders can be wary of providing mortgage loans for fixer-uppers due to the risk factors involved. For example, being unable to secure planning permission or experiencing unforeseen issues with the property that cost more money and take more time to resolve. They also won’t offer mortgages for properties that are uninhabitable. In this case, a bridging loan may be the solution you’re looking for.
Bridging loan lenders offer far more flexibility when it comes to what you can use the funds for. This short-term loan is typically taken out for up to 12 months. You can use it to buy and renovate a fixer-upper before refinancing to a mortgage or selling it for profit once it becomes habitable. It’s also fast to arrange, making it a good choice if you’ve seen a fixer-upper that you want to buy at auction.
Development finance
Another short-term funding solution, typically running from 6 months to 2 years, is development finance. Rather than receiving the funds in a lump sum, they are released in stages. For example, the initial payment is released to enable you to buy the property. Then, the remaining funds are released in stages to coincide with the schedule of works that you’ve agreed with the lender. This is to ensure that you stay on track with the renovation project as well as your budget.
Benefit from the potential a fixer-upper has to offer with the right finance in place
Buying a fixer-upper can be an exciting prospect but there are lots of risks to consider too. This can make it harder to be accepted for a mortgage and that’s where our mortgage brokers come in.
Before applying for a mortgage, they can advise you on ways to increase your chances of having a successful application. When you’re ready to apply, they have access to an unrestricted range of lenders. This means that they can compare the deals and criteria across high street and specialist lenders. Specialist lenders take a much more flexible approach to approving loans, increasing the options available to you.
If you prefer a bridging loan or want to arrange development finance, our mortgage brokers can tailor your application before presenting it to the lender most suited to your requirements. Just give us a call on 01322 907 000 when you’re ready to buy a fixer-upper and we’ll put the finances in place for you.