Millennials Trading Starter Homes for Fixer Uppers
With the housing market facing limited inventory, the starter home bracket is hit especially hard. As first-time home buyers enter the market, they find themselves competing for the same limited selection of starter homes. In heated markets especially, home price appreciation is pushing some home buyers to the higher-end of their budget. Renovation loans, like the FHA 203(k) loan, are growing in popularity because they allow home buyers to purchase previously overlooked homes and have the budget to complete necessary repairs or desired upgrades.
A recent article in The Day, profiles a young Connecticut couple aged 29 and 30, that opted to use an FHA 203(k) loan to finance the purchase and renovation of a fixer-upper, rather than continue to compete in the overcrowded starter home market. In the article they explained, “we’re looking at a lot of houses and we’re going into these places where they’re pretty much at the top of our budget and it doesn’t really let us do any renovations or changes, and we don’t really like what we’re looking at.”
Renovation loans are not new. They became a common tool after the housing crisis, when buyers and real estate investors sought to repair foreclosed properties and are becoming popular again because of the limited inventory problem. While home builder confidence is high, the construction industry has yet to outpace home buyer demand. Millennials have transitioned into homeownership more slowly than previous generations because of student debt and other financial problems, and now that they are ready to buy, they are competing in a heated market.
A renovation loan is designed specifically to facilitate home repair or remodel on a newly purchased or existing home. The FHA 203(k) loan is streamlined into one application, one approval process, one closing, and one mortgage payment. Rather than using savings or credit cards with high interest rates to finance repairs, home buyers can obtain financing for the full value of the home plus any needed repairs or wanted upgrades.
Before deciding on any type of mortgage financing it is best to consult a mortgage professional and discuss your specific situation.
Sources: The Day, HUD.gov