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6 Upgrades That’ll Help Sell Your Home During the Pandemic—and Beyond

September 24, 2020

home improvements to make before you sell

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If you imagined 2020 was the year you would finally list your house for sale, you may have hit the brakes on those plans when the coronavirus pandemic arrived.

But now, we’re more than six months into the COVID-19 era with no clear end in sight. As many people continue working and logging in to school from home, the real estate market is again heating up with buyers eager to upgrade to a new home.

So stop putting it off: Now is the time to step on the gas in preparing your home to sell. We talked with experts to learn which home improvements will hit the right note with buyers during the pandemic (and beyond).

1. Upgrade your outdoor space

Most of us are suffering from an acute case of cabin fever these days. It’s little wonder that outdoor space has become more important than ever to prospective buyers.

“Even pools are becoming more popular in areas where they weren’t before,” says Bill Walker, chief operating officer of Kukun, a web resource for home improvements.

That doesn’t mean you need to splurge on a new in-ground pool; even a minor landscaping refresh can make a big difference and increase curb appeal. Depending on your budget and your neighborhood, you might also consider adding an in-ground fire pit or outdoor kitchen to maximize your outdoor space.

If you live in a cooler climate, extending the usability of your outdoor space will be a big draw for buyers.

“Get a low-cost outdoor heater and area rug to stage the space as an outdoor living room,” says Francie Malina, a real estate agent in New York’s Westchester County.

2. Create a functional home office or classroom

Many workers aren’t heading back to the office until 2021 or even later, which means home office space is at a premium, along with space for kids to log in to their virtual classrooms.

“People need a dedicated space for multiple people to be able to be on calls at the same time,” says Walker, who currently works at home alongside his wife, and his kids attending school virtually. “It definitely creates challenges when we all need to be on calls and need space to work.

Even if you don’t need two home offices or a remote learning station for your own family, consider staging your home to show the possibilities for buyers.

“Staging a guest bedroom as a home office or classroom is a good idea,” Walker says. “The potential buyer can see the room being used in a versatile way and visualize it for themselves.”

Plus, most of us host guests in our guest rooms for less than a month per year, Walker says—and probably even less during the pandemic.

3. Add separation of space

Open floor plans are so 2019.

“Open floor plans are losing a bit of luster,” Malina says. “Homeowners are looking for distinct spaces for family members to work or study.”

If your space isn’t well-segmented, you may want to create separate spaces by adding barn doors or pocket doors—or even room dividers for a quick and easy solution.

Having distinct rooms helps to minimize volume from other people’s activities, and can also create a different feeling in each part of the house.

“As people are spending more time at home, they want room and different environments to not feel stuck inside,” Walker says.

4. Add space for a home gym

Many people are forgoing the gym during the pandemic, preferring to work up a sweat from home to minimize risks of coronavirus transmission. That means people are looking for space to house gym equipment, from yoga mats to treadmills and stationary bikes.

Your home may not have the space for a fully equipped home gym, but you can still carve out a corner where home buyers will be able to picture their future at-home HIIT workouts or yoga flows.

5. Give your in-law suite a makeover

If you have a guest house, this can be an attractive feature for buyers right now—especially those with multigenerational households, or people looking for a potential source of rental income.

“With people bringing elderly family members home, [additional dwelling units] are a good option, especially if there is a kitchen and bathroom,” Walker says. “Even if this space isn’t used for personal reasons, it can be an investment property.”

6. Spruce up the laundry room

Concerns about cleanliness and hygiene have been at an all-time high during the pandemic, which means “laundry rooms are more important than pre-COVID,” Malina says.

People are doing laundry more often after running errands, and many of us have become more diligent about washing our bed linens. Plus, who couldn’t use more room for ironing, folding, and hang-drying clothes?

“Having a dedicated space to do laundry is a wonderful luxury, and buyers often want the space to be beautiful like the rest of their homes,” Malina says.

The post 6 Upgrades That’ll Help Sell Your Home During the Pandemic—and Beyond appeared first on Real Estate News & Insights | realtor.com®.

It Just Makes Cents! 7 DIY Home Improvement Projects That Promise Serious ROI

August 20, 2020

painting kitchen cabinets

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DIY home improvements can be great feel-good projects. You get to learn a new skill, use your hands, and take pride in something you create yourself.

But let’s face it: Your DIY project doesn’t make sense if it won’t make cents. In other words, it needs to pay off when it comes time to sell your home.

“The key to winning the ROI game with home improvement is to take a less-is-more approach,” says Dan DiClerico, home expert at HomeAdvisor.

If your goal is to earn a return on your DIY investment, DiClerico suggests taking on smaller improvements that will have a big impact on buyers.

“Bells and whistles tend not to rank high on ROI,” DiClerico says. “The high-tech home theater might mean hours of fun for you and the family, but it’s probably not going to pay for itself when the time comes to sell.”

Of course, that doesn’t mean you can’t outfit your house with the latest technology—if you’re making an improvement that you’ll love and enjoy, go for it. But if you’re looking to roll up your sleeves and tackle a project that will offer serious bang for the buck, try one of these home improvement projects next weekend.

1. Refresh your kitchen cabinets

“If the cabinets are in good shape, adding a fresh coat of paint or stain will dramatically transform the feel of the entire kitchen,” DiClerico says.

Be warned: Even though painting isn’t very difficult, it’s still time-consuming. You’ll need to remove the doors and drawers to ensure a clean finish. “But in terms of skill level, it’s something even novice DIYers can handle,” DiClerico says.

And remember, slow and steady wins the race when it comes to any painting project.

“You could lose some buyers with a sloppy paint job,” says Scott W. Campbell, a real estate agent in Milwaukee. “If you truly want to increase ROI, a good paint job takes time and patience.”

2. Create curb appeal

Making a great first impression on home buyers is one of the quickest ways to boost your home’s value.

“Landscaping and gardening are the biggest ones that also are simple,” says Kendall Bonner, a real estate agent in Lutz, FL. “Curb appeal has a significant impact on buyer’s purchasing decisions.”

Aside from adding tasteful foliage and keeping your lawn manicured, a few strings of café lights can also improve your home’s outdoor space and curb appeal. Don’t forget to paint old fences and prune overgrown plants.

3. Give your front door a makeover

Want to boost your home’s curb appeal but don’t have a green thumb? Spruce up your front door instead. All it takes is a few coats of paint. (The same rules apply: Work slowly and carefully to avoid drips and roller marks.)

“A fresh pop of color at the front door is a great way to enhance your home’s curb appeal for not a lot of money or time,” DiClerico says.

4. Create a backyard deck

“Outdoor living is hugely popular, even more so since the pandemic, since people are looking to expand their home’s usable living space,” DiClerico says.

Creating a new deck is possible to do yourself, but “it’s not for the faint of heart,” he adds, especially if you’re putting in concrete footings for the deck posts. This project is best for intermediate to advanced renovators, and it helps to have a few friends on board to assist.

Keep the design simple—avoid any tricky changes in elevation—and work with pressure-treated lumber instead of hardwoods that are tough to cut and screw into, DiClerico says.

5. Brighten up the basement

You don’t need to spring for a fully finished basement to appeal to prospective buyers.

“Spraying the basement unfinished ceiling with flat black latex paint can make big difference to clean up a look, and spraying the walls,” Campbell says.

To take your project to the next level, you can add carpeting and adjustable lighting. By cleaning up the basement, you can help prospective buyers envision a space that will fit their needs, whether it’s as a rec room, play area, or home gym.

6. Add more storage

“Anytime you add usable living space to the home, you increase its value,” DiClerico says. “That’s true now more so than ever given all the time we’re spending at home.”

Making an addition to your home might not be realistic. But smaller improvements, like adding a pantry in the kitchen, a new storage unit in the garage, or even closet organizers, add valuable storage space to your home and will pay off when you’re ready to sell.

7. Make small repairs and keep up with maintenance

It may not be as satisfying as tackling a big project, but staying on top of your home’s basic maintenance is just as important and promises serious ROI.

“Many of today’s buyers are staying away from fixer-uppers in favor of move-in ready homes that won’t require frequent repairs,” DiClerico says.

Seemingly small problems like a leaky faucet, loose gutter, or missing light fixture can be a red flag.

“When buyers see things like that, they think to themselves, ‘What else is wrong with this house that I can’t see?’” DiClerico says. “Spending a few hundred dollars on these small repairs will let the buyer know that this house has been cared for.”

The post It Just Makes Cents! 7 DIY Home Improvement Projects That Promise Serious ROI appeared first on Real Estate News & Insights | realtor.com®.

5 Crucial Questions to Ask Before You Buy a Fixer-Upper

September 18, 2019

iStock; realtor.com

Thinking about buying a fixer-upper? Join the club. Blame it on the popularity of renovation reality TV or just the fact that people are searching for deals, but many home buyers are willing to purchase a property in need of major repairs. One survey by Clever Real Estate found that 67% of millennial home shoppers in the United States said they would put in an offer on a home with serious flaws that need to be fixed.

Purchasing a home that needs serious remodeling, though, isn’t a decision you should make lightly. Here are five questions to ask yourself before buying a fixer-upper.

1. What’s my motivation?

Reviving a rundown home is always a challenge, no matter how many houses you’ve flipped or episodes of “Fixer Upper” you’ve seen—and that’s why it’s important to assess your motivations before you dive in, says Joshua Jarvis, founder of Jarvis Team Realty in Duluth, GA.

Simply enamored by what you’ve seen on HGTV? Newsflash: “Reality TV is not reality,” says Jarvis. “I hate to shatter people’s dreams, but there’s a lot more work involved than people think.”

Flipping an outdated house in order to make a profit, though, is a sound reason to buy a fixer-upper, Jarvis says. After all, home flips in 2018 returned an average gross profit of $65,000, according to ATTOM Data Solutions.

Purchasing a fixer-upper can also be a good idea if you’re looking to make a home your own without building one from scratch, or if you’re simply looking for a great deal. Indeed, people shopping for a fixer-upper can expect to spend 20% to 25% less than what they’d have to shell out for comparable homes that are move-in ready, says Dan Bawden of the National Association of Homebuilders. (Homes with serious issues—such as cracks in the foundation or a major mold infestation—can command even deeper discounts, Bawden says.)

Fixer-uppers are also good options for DIY buffs—your sweat equity will buy you bragging rights. What’s sweeter than being complimented on your kitchen and being able to say, “Thanks, I did it myself”?

2. Where am I going to live during the renovations?

Unless you’re planning to live in your new home while the renovations are underway, you’re going to need a place to stay until the house is ready. This can be a financial challenge, Bawden notes, since you have to factor in the time you’ll be paying the mortgage and bills without being able to live in the home. Read: Six months of paying rent on top of your house payment can quickly eat into what you saved on your “great deal.”

3. What’s my remodeling budget?

The best fixer-uppers are ones that mostly need cosmetic updates—things like kitchen and bathroom renovations, new floors, siding repair, or wallpaper removal—since major flaws can quickly eat up your remodeling budget. But, regardless of how much (or how little) work you’re going to put in, you need to have enough money to pay for the renovations.

Need help setting a budget? Have several contractors give you in-person estimates. That way you’ll have a rough but accurate idea of how much it’s all going to cost you. The caveat: You may have to pay the professional a few hundred dollars to walk through a potential home and estimate the renovation costs, but it’s worth it.

4. How am I going to pay for everything?

Now that you know how much the renovations are going to cost, you have to figure out how you’re going to pay for everything. Unless you’re sitting on a mountain of cold, hard cash, you’ll need to obtain a home loan that allows you to spend a portion of money on home improvements. The good news: A home that requires major renovations can qualify for a special type of financing called a home improvement loan. There are two main types of home improvement loans.

The first is a FHA 203(k). This is a loan from the Federal Housing Administration that lets you put as little as 3.5% down. There are a couple of restrictions, though. The original foundation must remain, says Suzanne Caldeira, vice president at mortgage lending company Shamrock Financial Corp. Also, the upgrades you make cannot be “luxury” items, like adding a pool or fire pit. Third, the work must be completed within six months.

To qualify for a 203(k) loan, homeowners have to provide a bid from an approved contractor to make the upgrades they want with their loan paperwork. An appraiser reviews the home and the submitted bid, and appraises the estimated value of the home post-renovation. Once the loan is approved, the money for the renovation is put into escrow. After the work is completed—the deadline is six months—an inspector visits to determine that it’s been done correctly, and then the money is released to the contractor. In the same way as with traditional FHA loans, you can pay the money back over 15 or 30 years.

The second type of home improvement loan is a Fannie Mae HomeStyle loan. It’s similar to a 203(k) loan, but it requires a down payment of at least 5%. Another difference: There’s no limit to the kinds of renovations you can do, as long as everything is permanently affixed to the home and adds value.

Like a 203(k) loan borrower, you will need to hire an approved contractor and submit a bid for the project with your loan paperwork. You then have an appraiser determine what your home will be worth after the renovations. Once you’ve got that number, you can borrow up to 50% of that appraised value to work on the renovation. As with a 203(k) loan, the money for the renovation is held in escrow until the work is completed and inspected and is then released to the contractor. However, with the HomeStyle loan, you get 12 months to complete the renovation, instead of six. You then pay it back over a period of 15 to 30 years at either a fixed or adjustable rate.

5. Am I prepared to manage this project?

From finding the right house and negotiating a deal, to hiring contractors and securing permits, there will without a doubt be plenty of moving parts for you to oversee during this whole process. That will mean you need to ask yourself whether you have the time and the patience to manage everything.

While hiring a general contractor to oversee the renovations can help lighten the load, reviving a fixer-upper is still a huge commitment, so make sure you know what’s required before you dive in.

The post 5 Crucial Questions to Ask Before You Buy a Fixer-Upper appeared first on Real Estate News & Insights | realtor.com®.

7 Important Home Repairs to Do Right After Moving Out

August 28, 2019

Kativ/iStock

Congratulations: You’re moving out, and on to your next home! Now all you have to do is pack up your things and skedaddle, right?

Not so fast. If you’re still trying to sell your current home, you’ll want to make sure it looks its best, which means you might have to make a few repairs. And there’s no better time to do this than after you’ve removed all your boxes and furnishings, since this means you’ve got plenty of space to get the job done right (and with minimal mess).

Granted, you might have already made some upgrades during the early stages of sales prep … but moving out means you could uncover a whole lot more. And trust us, buyers will notice!

Of course, if you’ve already sold your home, you’re off the hook … but if not, it will behoove you to do these seven upgrades after moving out. Don’t worry, they’re fairly easy, and they’ll make a big difference helping you find a buyer who’ll pay top dollar.

1. Patch holes in walls

Seeing walls with holes—even small holes left by nails—is an immediate turnoff to home buyers, says Sarah Fishburne, director of trend and design at The Home Depot. But you don’t have to repaint your entire house to have your home looking fresh again. A little spackling, followed by spot painting—a cinch if you’ve kept some original paint—will do the trick. (If you don’t have any leftover paint, peel a dollar-size piece from the wall and bring it to the paint store so they can match the color for you.)

If you have only a few holes and scratches, you can fill them with spackling compound, which is sold in small quantifrecities. For a greater number of gashes or holes, use joint compound, which is sold in quarts or 5-gallon buckets.

2. Add a fresh coat of paint to rooms that are outdated or painted in loud colors

Love that plum paint color you chose for your master bedroom? Home buyers might not! The good news is, painting a room is an easy, low-cost project you can do yourself. Selecting the right hue, though, is crucial.

“Neutral colors are generally the safest choice, as they blend with many different decor styles,” says Hunter Macfarlane, Lowe’s project expert. “Gray is a popular color to paint a room before selling, as it gives the walls depth while still tying furniture and other decor items together.”

Moreover, “a fresh coat of paint never hurt resale value,” Fishburne says.

3. Replace old outlet wall plates

This is another quick and budget-friendly way to make a space feel cleaner and updated, Macfarlane says. Proceed with caution, however: Old wall plates can be a fire hazard if they’re cracked or damaged in any way. If you suspect there’s an issue, hire an electrician to replace the wall plates for you.

4. Clean carpeting

Dirty and dingy carpets are huge eyesores, which is why David Pekel, chief executive officer at the National Association of the Remodeling Industry, recommends that homeowners give their house’s carpeting a good cleaning after moving out. You can amp up your vacuum with rug-cleaning products such as powders, foam sprays, and liquid shampoos available at grocery and hardware stores. For stained areas, use a bristled brush to work the cleaning solution into the carpet before allowing it to dry and then vacuuming up.

To remove embedded dirt, you may need to use a powerful industrial-style carpet-cleaning machine, like a Rug Doctor, which sprays hot water with a detergent over the carpet and extracts it with a high-powered vacuum. Industrial carpet cleaners have more washing and sucking power than most consumer carpet cleaners, but they’re expensive to buy—about $400 to $700—so it’s more economical to rent one from a hardware store for about $25 to $30 per day.

5. Clean hardwood floors

Many home buyers swoon over hardwood floors. So if you have them, make sure they’re glistening after you move out.

“Wood is probably the easiest floor covering to keep clean, but you have to use the right cleaning products,” says Brett Miller, vice president of education and certification for the National Wood Flooring Association in St. Louis.

Most wood floor installers or manufacturers recommend cleaners that contain isopropyl alcohol, which dries quickly, and are available at home supply stores. To make your own solution, simply add a capful of white vinegar to a gallon of water, which will help dissolve grease and grime on the floor but won’t strip the finish. To remove shoe scuffs, rub marks with a tennis ball, which cleans without scratching the finish.

Under no circumstances should you use a steam mop, Miller warns.

“Steam is horrible for wood floors. It opens the pores in woods and damages the finish, causing irreversible damage to any wood floor,” he says. Here’s more on how to clean hardwood floors.

6. Replace or refresh old hardware

Swapping out old cabinet and door hardware is a simple, low-cost project you can tackle in a day that will make your home more visually appealing. All you need is a screwdriver and a free afternoon. Want to save some money? Keep your existing hardware and give it a makeover with spray paint—a few light coats can breathe new life and personality into rusty old knobs and pulls.

7. Improve the look and functionality of your master bathroom

A full bathroom remodel is expensive; on average, it costs $10,344, according to HomeAdvisor. Just a few changes to your master bathroom, though, can make it one of the most stylish rooms in your house.

Simple touch-ups, like regrouting and recaulking bathroom tile, will make the room look newer. In addition, swapping out inefficient toilets, faucets, and shower heads for products that aid in water conservation can add real appeal to prospective home buyers who are looking to lower their water footprint (and lower their water bill!). A low-flow toilet, for example, uses 20% less water than a standard toilet, and water-saving shower heads can help families save almost 3,000 gallons of water a year.

The post 7 Important Home Repairs to Do Right After Moving Out appeared first on Real Estate News & Insights | realtor.com®.

What Is a Home Equity Loan? How It Works vs. a Home Equity Line of Credit

November 7, 2018

What is a home equity loan? If you own a home, you can borrow money based on its value to pay other expenses such as home improvements or college tuition. You receive a lump sum upfront, then repay it in monthly installments—plus interest—over a period of time lasting typically from five to 15 years.

Home equity loans are a popular option for homeowners because their interest rates are much lower than those for other common forms of borrowing, such as personal loans or credit cards, says Tendayi Kapfidze, chief economist at Lending Tree. And since home equity rises alongside real estate values, they’re a boon to many homeowners.

“People have been gaining home equity at an extremely fast rate,” says Ryan Kelley, CEO at TheHomeLoanExpert.com. As a result, many homeowners are turning to home equity loans to pay for a variety of things.

“We’ve seen, in the last two years, an increasing demand for home equity loans,” says Jon Giles, head of home equity lending at TD Bank.

Here’s how to decide if a home equity loan is right for you.

What is a home equity loan? How to use these funds—and why

When you get a home equity loan, you can spend that money anyway you choose. However, there are some primary ways people use their funds.

According to a recent Lending Tree study, 43% of home equity loan applicants said they planned to spend the money on home improvements.

Meanwhile, 38% of applicants said they’d use the cash to consolidate debt. That’s often a smart use, “particularly if you’re moving higher-interest debt to lower-interest debt so that you can pay off your debt more quickly,” Giles says.

Using home equity loans for education is also common, given the skyrocketing costs of college education. Plus, families with higher incomes may not qualify for grants or government-backed student loans, but they can qualify for home equity loans.

Additionally, some borrowers put the money toward a down payment on a vacation home or investment property, while others use the funds to buy a car or pay for emergency expenses.

Unfortunately, some people squander the money, obtaining a home equity loan to fund their discretionary spending. Not a great idea!

“Tapping your home equity to take a vacation, buy a yacht, or get plastic surgery would definitely be a misuse of the funds,” says Greg McBride, senior vice president and chief financial analyst at Bankrate.com.

Home equity loan vs. home equity line of credit: What’s the difference?

Many people confuse a home equity loan with a home equity line of credit, or HELOC. Essentially, a HELOC functions more like a credit card, where you’re allowed to borrow up to a certain amount of cash and then pay it off or reborrow as needed over the term of the loan (usually five to 20 years). In fact, your lender will issue you a small plastic card that looks just like a credit card, to allow you to access your money easily.

HELOCs generally have a variable interest rate, whereas home equity loans typically have a fixed interest rate. Because the interest rate is fixed on a home equity loan, you know exactly what your monthly payments will be. Meanwhile, monthly payments on a HELOC can go up or down depending on economic factors, warns Dan Green, founder at Growella.com, a mortgage education website for millennials.

Some HELOC lenders offer a low introductory rate, which lasts for a matter of months. But after that, the interest rate can fluctuate—so if you prefer steady payments, a home equity loan is a better choice for you.

How to qualify for a home equity loan

Naturally, in order to tap your home’s equity, you need to have a sufficient amount of equity built up. Most mortgage lenders will allow you to borrow up to 80% of your home’s equity when you obtain a home equity loan, says Kapfidze.

So, say your home is worth $250,000 and your mortgage balance is $200,000. In this case, you’d have $50,000 in home equity, which means you’d be able to borrow up to $40,000. (Note: Some lenders let you borrow up to 90% of your home’s equity, Kapfidze says.)

But, in order to qualify for a home equity loan, you also need reasonably strong credit.

“For most mortgage lenders, you need a credit score in the upper 600s or higher to qualify,” says Giles, adding that a credit score in the mid-700s and higher will help you qualify for the best interest rates.

And, as with a regular home mortgage, you’ll need to have an adequate debt-to-income ratio—a simple equation of your monthly debt payments divided by your monthly income—in order to qualify for a home equity loan. Generally, your DTI ratio cannot exceed 43% of your gross monthly income.

Should I get a home equity loan?

Home equity loans offer some attractive features. Most notably, “a home equity loan is a great option if you want to know exactly how much money you wish to borrow on Day 1, and you want a fixed interest rate,” Giles says.

Moreover, “having a fixed interest rate can be a big benefit when you’re in an economic environment where rates are rising like they are today,” Kapfidze points out.

Also, home equity loans can offer a nice tax break. Under the new Tax Cuts and Jobs Act, you can deduct the interest paid on up to certain amounts ($750,000 for a married couple or $375,000 for an individual), so long as you use the loan to buy or improve your first or second residence, Kapfidze says. (Read: You won’t qualify for a tax deduction if you spend the money in a different way.)

Making timely payments on a home equity loan will also improve your credit score, McBride adds.

Nonetheless, “make sure you understand how a home equity loan is going to affect your overall financial picture, and figure out a plan for how you’re going to pay back the money before you get one,” Kapfidze advises.

The post What Is a Home Equity Loan? How It Works vs. a Home Equity Line of Credit appeared first on Real Estate News & Insights | realtor.com®.

4 Things I Wish I’d Known Before I Got an FHA Loan

August 3, 2018

Michail_Petrov-96/iStock

A few years back, my husband and I were growing out of our two-bedroom, 850-square-foot rental in St. Petersburg, FL. We had one child, one cat, and lots of stuff. In short, it was time to move.

We didn’t think we were ready to buy, but a friend (it always starts with a friend, doesn’t it?) had recently bought using a Federal Housing Administration loan, and it was working out wonderfully.

My husband and I had decent credit scores and low debt, but we certainly didn’t have 20% to put down on a home. An FHA loan—which allows the buyer to put down as little as 3.5%—sounded like a dream come true. We found an FHA-approved lender, and in no time, we were on our way to buying our first home with a government-backed loan.

But in the middle of this process, someone asked us how much our mortgage insurance would be.

“Mortgage insurance?” I asked. “What’s that?”

Unfortunately, our lender hadn’t explained much about the rules and restrictions surrounding an FHA loan. We learned the hard way—after it was already a done deal. It didn’t stop us from landing our starter home. But here are four things I wish I’d known before I signed on the dotted line.

1. You’re on the hook for mortgage insurance for the life of the loan

Let’s get into the first thing you’ll have to factor in with an FHA loan: mortgage insurance.

This is a payment that’s usually required when the buyer isn’t putting 20% down. (You might know it as PMI, or private mortgage insurance; the FHA’s version is called MIP, or mortgage insurance premium.)

The buyer (you) must pay monthly mortgage insurance to protect the lender in case you default on your loan—it’s the price you pay for landing a mortgage with such lenient qualifications.

Now, the twist: It used to be that you had to pay this mortgage insurance on an FHA loan only until you gained 20% equity in your home. But under legislation passed in 2013, you can plan on paying that extra money for the life of the FHA loan. Yikes! (You can skirt this requirement if you put at least 10% down, but that kind of defeats the purpose of the sweet, low down payment option, right?)

All is not lost, though: Eventually, your monthly payments will go down as you whack away at your loan amount.

“But for the first few years, a buyer is paying mostly interest rather than principal, so the loan amount doesn’t go down for quite a while,” says Robert Harris, owner and mortgage consultant at All in One Lending.

2. You can’t buy just any house within your approved loan amount

As long as the bank thinks you’re good for the loan, why wouldn’t you be able to buy any house you want? Well, the FHA has a few more hoops to jump through than conventional loans.

To be approved for the loan, the house must pass an inspection conducted by the U.S. Department of Housing and Urban Development. A licensed, HUD-approved appraiser will determine the market value of the home and do a “health and safety” inspection to check for crucial problems such as a crumbling foundation or issues with the mechanical systems.

“Many people don’t know that the guidelines can be pretty strict for an FHA loan,” says Paolo Matita, a former real estate agent who says the inspection was an issue for his FHA loan–holding clients. “The roof, AC unit, plumbing, and electrical all need to be fully functional and be able to last for several years if they’re going to pass inspection.”

(Note: This inspection is not a substitute for a regular home inspection, which you should absolutely get, too.)

What’s more, if the house requires certain repairs in order to pass inspection, they must be completed before the sale can go through. This can create another hurdle for FHA buyers: You either fork over the money to make the repairs, or ask the seller to take on the cost—a pretty big risk, especially in today’s seller’s market.

In the end, you might end up having to walk away from the deal.

3. You might not be able to use your loan for renovations

My husband and I found a house that had potential but needed serious TLC. The home was under budget, so we thought we’d just tap the unused portion of the loan to make repairs. No biggie, right?

It turns out, the type of FHA loan we’d signed onto didn’t allow renovations. Had we done more research upfront, we would have discovered that there is a loan out there that would have allowed us to buy and repair that fixer-upper: an FHA 203(k) loan.

With a 203(k) loan, you can dedicate up to $35,000 for home improvements. The lender will have a say in what kinds of repairs you can make, but the 203(k) loan can be a great solution for first-time home buyers who don’t mind doing a little work.

4. You still need decent credit for an FHA loan

While we didn’t have ultrahigh credit scores, getting an FHA loan wasn’t a free-for-all: Buyers must have a 580 credit score to take advantage of the 3.5% down payment option. Lenders also have a stake, and will often demand a credit score of 600 or higher to qualify. (Our lender required a credit score of 665 or better.)

The FHA also has specific requirements about how much debt you can carry, so check current guidelines to make sure your debt is manageable in the eyes of the government.

An FHA loan afforded us a rock-bottom interest rate with a low down payment. But don’t assume an FHA loan will be a slam dunk into homeownership—do your homework and weigh the pros and cons to determine whether an FHA loan is truly right for you.

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