You have a lot of decisions to make when choosing what home to buy: where you’re going to live, the size of the home and the amount of work you're willing to put into it.
You may want to move in with no work involved, or you may not mind freshening up a couple rooms to match your style. Or you may want to buy a home at a lower price that needs a lot of work but has good bones.
Here are a few considerations to help you decide if buying a fixer-upper or a newly constructed or recently renovated house is the right choice for you:
Fixer-uppers are often the top choice for first-time homebuyers who are limited by their budget as well as people who prefer to take on a project.
Whether you're looking at fixer-uppers because they fall in your price range or because you like the idea of taking on a major renovation, the scope of the work involved has to be something you're willing to take on. With a tight budget, you may be doing a lot of the renovations yourself or spacing out the remodel room by room while you save up. If that doesn't appeal to you, a fixer-upper might not be the house for you.
If the work needed in a fixer-upper sounds unappealing, narrow your search to new construction and recent renovations that check all the boxes. If you like the idea of renovating right away to customize the space, focus on fixer-uppers.
Unless you’re moving into a new, customized house, there’s a good chance you’ll be making at least minor renovations to your home. Raf Howery, founder and CEO of home information and data company Kukun, estimates 60% of all homes bought get remodeled to an extent, regardless of their living condition at the time of the sale.
In many cases, even if a kitchen or living room doesn’t feel dated, you may want to paint walls, replace flooring and restain or add cabinets, for example. “Most people will have to put that stamp on their home,” Howery says.
If you want to make tweaks and customizations to your home, you may want to buy an existing house with a lower price tag to make up for the additional money you’ll be spending on renovations.
As with any home purchase, your budget will likely be a major factor in the choice between a new construction house and a fixer-upper.
The median price for an existing home in the U.S. was $284,600 in May, according to the Federal Reserve Bank of St. Louis. Meanwhile, the median price for new homes was $317,900.
That difference of more than $33,000 is partly due to the fact that many new construction houses are built at the higher end of a local market’s price range, with new systems and materials that drive up the price.
On the other hand, fixer-uppers may come with additional costs related to aging systems and possibly neglect.
From a homeowners insurance perspective, a new construction house is far less of a liability than a fixer-upper. “Our underwriting appetite has always been for newer homes that have been built better and lived in by responsible people,” says Jason Metzger, senior vice president and head of risk management and service operations at PURE Group of Insurance Companies. While older homes can certainly be covered by insurance policies, the greater risk for problems can lead to a higher premium.
When you purchase a fixer-upper that needs major renovations before you move in, you’ll likely need to finance the cost of the remodel as well as the purchase of the home.
Many banks that offer conventional mortgages won’t approve a loan that's greater than the current value of the property, because lending money for planned renovations is considered a risky lending move.
There are, however, a few mortgage programs through the federal government that can make it possible, including:
- Federal Housing Agency 203(k) loan.
- Fannie Mae HomeStyle renovation mortgage.
- U.S. Department of Veterans Affairs renovation mortgage.
“It’s important to appreciate that these types of loans often come with significant red tape or a higher price tag, and in some cases both,” Lauren Anastasio, a certified financial planner with financial services company SoFi, who is based in the Philadelphia area, wrote in an email.
Expect limitations when it comes to the contractor you’re allowed to choose for renovation work with these federal loans, Anastasio says. If you opt to find a renovation loan through a private lender, you’ll likely pay a higher interest rate.
If you can afford the renovations without a loan, you may be better off financing your mortgage separately from the cost of the needed rehabilitation. You may be able to secure a separate personal loan at the same time of your home purchase, or wait for some of the renovations to build up enough equity to get a home equity loan.
For a fixer-upper that needs a lot of work, you’ll likely have to begin planning your renovation in advance, including establishing your total budget for the project, determining the scope of work needed and creating your timeline.
You’ll want to recruit a team of professionals that will help you complete the renovation, and that may include more people than you think. If your renovation will be lengthy and involve heavy construction, you may need a construction insurance policy to protect the property. But your insurance company can also be a resource for determining priorities in the rehab of the house, Metzger says: “We can help you pick out those things (in the home) that might lead to deferred maintenance issues.”
A glaring difference between new construction houses and fixer-uppers is often the location. You’re more likely to find new houses built in master-planned subdivisions in the suburbs. If you’re looking to live closer to a city center or in a more established neighborhood, your chances of finding a fixer-upper are much higher.
The importance you put into location is based on your preferences. While proximity to the city center can make for a short commute and provide easy access to entertainment, stores and other attractions, in the wake of the coronavirus pandemic you may not place emphasis on those details. “Some folks will definitely move to the suburbs, looking for larger homes,” Howery says.
The rule is "location, location, location" for a reason.
A homebuyer’s must-have list often includes a certain number of bedrooms, updated appliances and a garage or backyard. But one detail that’s sometimes overlooked is just outside the property lines – and it’s a major deal-breaker for many. The road your house is located on, backs up to or is even in the general vicinity of can have a significant impact on your quality of life as well as your home’s resale value and how long it takes for you to find a buyer. Before you buy your dream home on a busy street or near a railroad, consider how these roads and locations can become a major turnoff for future buyers.
Updated on Nov. 1, 2019: This story was published at an earlier date and has been updated with new information.High-traffic road
Living off of a road that sees a lot of traffic throughout the day can make for a hassle getting in and out of the driveway. And when you decide to sell, potential buyers will worry about its resale value, says Greg Hague, CEO of Hague Partners and 72Sold.com, real estate brokerages based in Scottsdale, Arizona. “The biggest detractor in home values (on a busy road) is the fear that buyers have that these homes will be harder to sell,” he says. It might take more time on the market and a lower asking price to entice buyers over a similar home on a quieter street.Cul-de-sac
A cul-de-sac is a dead-end road with only one entrance and exit to other streets, and on residential streets it often includes a circle for cars to turn around. Often located deep within a subdivision or at the end of a neighborhood, a cul-de-sac means minimal traffic, which will be a big selling point down the line. The farther inside the neighborhood you go, the less traffic you’ll experience and the more desirable the houses typically become, explains Roberta Parker, a real estate agent for Berkshire Hathaway HomeServices Fox & Roach, Realtors in Princeton, New Jersey. A cul-de-sac may also back up to a wooded area or undeveloped land, so homeowners benefit from the added privacy of having no neighbors behind them. As Parker says: “A cul-de-sac is your best investment.”Dirt road
Some people prefer to get away from heavy traffic so much that they’ll leave pavement altogether. A dirt or gravel road will certainly attract fewer cars, and properties on a dirt road are often larger with more land. While a buyer should expect his house and car to be dirtier because of the dust or mud of the road, many homeowners consider it a fair trade-off. “We don’t really find that that is a detractor in value – it’s a lifestyle,” Hague says. While you may not have the same size buyer pool for your house as a home in a developed subdivision, you shouldn’t have to worry about would-be buyers seeing your dirt road as a negative in terms of home value.Near a traffic light
Near a traffic light
Even if your area doesn’t experience high traffic volume throughout the day, having a traffic light within eyesight of your home can be irritating. Timothy Somers, a real estate appraiser and partner at the appraisal firm Davis M. Somers Co. in Ann Arbor, Michigan, lives near a traffic light. For him, it’s the noise from idling cars at the red light that can be a bit bothersome, although he’s gotten used to it over the years. “It can get noisy at times – not so much the traffic, but the loud music and that sort of stuff is annoying,” he says. Potential buyers may feel that way too.Alley
An alley is a narrow street between buildings, often in a city setting, that may not even be marked on a map. But in older cities and historic districts, you may occasionally find property addresses that take you to a door in the alley rather than on a main street. It may be hard for visitors or potential buyers to find, but Hague explains an alley entrance is considered a plus for home value: “You obviously have no traffic – just foot traffic. It’s unique, and people like unique.” The feeling of privacy and exclusivity can play up the desirability of the home and make a buyer willing to pay more for it.Double yellow line
Double yellow line
The area might not seem busy if you visit on the weekend, but if the home is located on a two-lane road with a double yellow line to prevent cars from passing each other – most often found in less-populated suburban or rural areas – Parker says it’s a red flag that a lot of cars use the road. “A double yellow line is an indication that there is more traffic, and it’s not typical of just a neighborhood. A double yellow line is a serious road,” she says. Expect it to be difficult to turn left out of your driveway during peak traffic hours. Also expect speeds higher than 25 miles per hour, which may make spending time in the front yard feel unsafe if you have pets or young kids.Highway within sight
Highway within sight
Regardless of how far you travel to work, a home next to an on-ramp is not ideal due to the noise pollution and the difficulty you’ll have trying to sell it in the future. It's better to live in a neighborhood that is set up to provide easy access to commuting options and where you won't have to see or hear traffic from a highway.Railroad
With a railroad near your home, you have a whole new type of car to be concerned about. Trains are loud to begin with, and if you live near a tunnel, train station or railroad crossing, expect even more noise as conductors sound horns and bells to ensure the track is clear. “Some people would shy away from a location like that. … When a freight train rolls through, it clanks, and there’s horns and more noise,” Somers says. If you’re considering buying a house near a railroad track, find out how often it’s used and the times of day trains will pass by. A regular midnight freight train could keep you up at night in your new home.Brick or cobblestone paving
Brick or cobblestone paving
A brick or cobblestone street often comes with the assumption that the houses on that street are as old as the paving. You may even live in a historic district of your city or town. “They’ve kept that (paving) because it has a such a historic and a kind of cool feel,” Hague says. A well-maintained house on a historic street will attract many potential buyers willing to pay top dollar for the location and overall look. Living in a historic district also means you’re expected to maintain your home to historic standards, so you’ll likely need to seek approval to paint your house, renovate the kitchen and even update the plumbing. All of these projects are likely to be more expensive for historic houses, as you may need to hire contractors with experience working on historic properties.Corner lot
Attitudes about corner lots within a neighborhood can vary depending on an individual’s preference, but Somers says preferences have evolved to favor interior lots. “Corner lots back in the ‘50s and ‘60s were a premium site. Today people will steer clear of them; they don’t like them as well,” Somers says. “Because of the yard configurations, they usually end up with a small backyard and large side yard. It’s less appealing than the standard interior lot. Plus, they’ve got twice the sidewalk to shovel.”One-way street
One-way streets are often found in more urban settings and often close to downtown to reduce gridlock. While it might prove inconvenient at times to live on a one-way street when you’re running late and need to head in the opposite direction, people don’t seem to let it affect their preference. Somers says he doesn’t see any change in desirability for a property located on a one-way street. So don’t be concerned about attracting potential buyers – the appeal of living close to downtown will likely outshine any downsides of living on a one-way street.Types of roads that could affect your home value:
Types of roads that could affect your home value:
- High-traffic road.
- Dirt road.
- Near a traffic light.
- Double yellow line.
- Highway within sight.
- Brick or cobblestone paving.
- Corner lot.
- One-way street.
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She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.