How to Buy a Fixer-Upper House with No Money Down

Have you ever thought about buying a fixer-upper home and turning it into the perfect abode? If you have, but you’ve been held back by a lack of funds, you may be surprised to discover that you can do this with little or no money down. Stop watching renovation shows and thinking, “Should I buy a fixer-upper?” Get ready to roll up your sleeves and earn some sweat equity with this comprehensive guide to buying a fixer-upper.

What Defines a Fixer-Upper?

A fixer-upper is a property that needs significant repairs, renovations, or updates. Due to their condition, these homes often sell below market value. Within the fixer-upper category, there’s a wide range of properties, from homes that have no structural issues but need new bathrooms, kitchens, flooring, and windows, all the way to houses that need major structural repairs.

Government-Backed Loans for Buying a Fixer-Upper

If you don’t have money for a down payment, you can still buy a fixer-upper using a government-backed loan. There are several loan programs that will help you get started on your dream home of the future!

VA Loans

Can you buy a fixer-upper with a VA loan, or is this financial assistance only available for move-in-ready houses? Happily, the VA has a special loan product called a VA renovation loan¹. These loans include the purchase price of the home and the repairs or improvements necessary to make the property safe and livable. The amount of a loan is based on what the home would be worth once the repairs and updates are completed.

Like a regular VA loan, VA renovation loans don’t require a down payment. They’re available to active service members, veterans, and surviving spouses.

There are a few additional requirements when buying a fixer-upper home using a VA renovation loan:

• The home must be the borrower’s primary residence once construction is completed.
• The VA must appraise the home when the renovations are done.
• The contractor must be approved by the VA and have a valid VA builder identification number.
• All renovations must be completed within 120 days of when you close on the house.

You can’t use a VA renovation loan for major renovations such as structural work, adding a new floor, or building a detached garage. If you’re thinking of buying a fixer-upper home with a VA renovation loan, it must be a home that needs relatively minor updates, such as new windows or doors, accessibility features, or a new HVAC system.

FHA 203(k) Loans

FHA loans under the 203(k) Rehabilitation Mortgage Insurance Program² cover the purchase and renovation of a home that is at least one year old. Although they do require a 3.5% down payment, the down payment can be covered by grants or gift funds. Like regular FHA loans, 203(k) loans are designed for people with lower incomes or credit scores, making them ideal for buying a fixer-upper.

FHA loans are available for a wide range of property types, including single-family homes, condominium units, and even units in mixed-use buildings.

There are two types of FHA 203(k) loans: one that covers major rehabilitations or repairs, and a limited form of the same loan for less expensive repairs and improvements. With a standard FHA 203(k) loan, you can do everything from installing new appliances to completely reconstructing a structure.

USDA Loans

USDA loans³ allow low-income people to purchase a home in an eligible rural area. These loans are available with 0% down, but they don’t cover the cost of renovations. However, they offer a great opportunity for buying a fixer-upper and financing the renovations after the deal closes.

Government Home Repair Assistance Programs

Although they don’t offer home financing, there are many federal and state government programs that offer assistance with home repairs and renovations⁴. The programs vary in terms of their eligibility requirements and the types of repairs they cover. Some of these are loan programs, while others are grants.

You may need to do some research to find government programs that will help with renovations and repairs after buying a fixer-upper, but this assistance can make your dream of home ownership a reality.

Additional Financing Options for Buying a Fixer-Upper

If you don’t qualify for any government-backed loans, don’t despair; there are many creative financing options available if you don’t have enough for a down payment.

Seller Financing

Occasionally, a seller offers to finance the purchase themselves. In these arrangements, a down payment may not be necessary, and you pay the seller in installments until you can secure other financing.

Lease to Own

In a lease-to-own or rent-to-own arrangement, you pay rent the way you normally would for a rented property, and part of your rent goes towards the purchase of the property. The purchase price is established at the beginning of the agreement. These arrangements are ideal for people with low credit who need time to improve their credit score. When buying a fixer-upper under a lease-to-own agreement, look for properties that need minor improvements. Since you’ll be living in the home during the renovations, major renovations would be very challenging.

Hard Money Loans

If you plan on buying a fixer-upper to flip, a hard money loan could be right for you. Hard money lenders are private individuals or companies that finance real estate projects. These loans carry a higher rate of interest than traditional lenders because the lenders are assuming more risk. The loan is secured by the property itself.

Should I Buy a Fixer-Upper?

Now that you know how to buy a fixer-upper with no money down, the question remains: Should you do it?

Pros of Buying a Fixer-Upper

There are numerous reasons to buy a home that needs significant repairs and updates, including:

• A lower purchase price and less competition with other buyers.
• Instantly increased equity after the renovations.
• The opportunity to customize your home.
• Tax benefits for some improvements.
• Pride in doing some of the work yourself.
• Learning construction, renovation, and project management skills.
• Potential for profit if you flip the home.

Cons of Buying a Fixer-Upper Home

Real-life fixer-uppers are very different from television ones, and come with significant disadvantages, including:

• The inconvenience of living in a home that’s under renovation.
• Unexpected costs due to issues not caught by the home inspection.
• Project management challenges.
• Tiring physical labor that can have a long timeline.
• Having to coordinate with contractors and tradespeople.

Carefully consider the costs and benefits of buying a fixer-upper before you dive in. Talking to some people who have been through the process can be very helpful in discovering the range of challenges that you might face and how you can handle them.

¹VA Renovation Loans* https://www.veteransunited.com/valoans/va-rehab-loans/
²FHA 203(k) Loans* https://www.hud.gov/hud-partners/single-family-mortgage-programs-203k
²USDA Loans* https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program
⁴ Government Home Repair Assistance Programs* https://www.usa.gov/home-repair-programs

*By clicking these links you will be redirected to a third-party site.