That’s right—go find yourself an ugly home! It might not be love at first sight, but buying a less-than-perfect home could be one of the smartest real estate moves you make. Homes that have been on the market longer often mean motivated sellers who are willing to negotiate on price or even help buy down your interest rate. While some sellers may hesitate due to potential delays in closing, many are open to making a deal.
Ugly Is the New Cool
Unfortunately, you can’t just type “ugly homes” into an MLS search (though that would be amazing!). But a great real estate agent will help you find those hidden gems.
Many people dream of building a custom home, but for most, that dream remains just that—a dream. A well-renovated home, customized to your taste, can be the next best thing! If you can find a home in a neighborhood you love with a workable floor plan, a renovation may be a much better (and more affordable) option than building from the ground up.
Think about it: new construction involves excavation, utility hookups, permits, foundations, easements, and more. Renovating an existing home saves you from many of those headaches.
Time: The Biggest Obstacle
One challenge? Time. Sellers often don’t want to wait while you finalize renovation plans, gather material lists, and secure contractor bids. The good news? The work doesn’t have to be completed before closing, but your plans and specifications do need to be in place.
Understanding Acquisition Costs
Lenders look at something called the acquisition cost—but what exactly does that mean? Great question!
Acquisition costs include:
• Hard costs (labor and materials)
• A contingency reserve (usually 10-15%)
• Architectural and engineering fees
• Consultant fees
• Inspections and title updates
• Permits
• Lender origination fees
• Up to six months of mortgage payments (if the home is uninhabitable during renovation)
Lenders will also order an appraisal based on the future value of the home after renovations are complete.
Renovation Loan Options
There are five main types of renovation loans:
FHA 203K Loans
• Standard FHA 203K – Ideal for major renovations exceeding $75,000.
• Limited FHA 203K – Great for projects under $75,000, such as flooring, cabinets, painting, electrical, and appliances.
VA Renovation Loans
• Limited VA Renovation – Covers up to $35,000 in renovations.
• Standard VA Renovation – For larger projects.
Freddie Mac Renovation Loan
• Can be used for second homes and investment properties—a fantastic option!
A few things to note: No, you can’t use these loans to add a swimming pool, spa, or tennis court. But you can use them to create the home of your dreams.
The Big Question: What About Interest Rates?
Is the interest rate the same as a regular loan? Nope. Expect a slight bump—maybe 0.25% to 0.50% higher—since these loans come with more risk and require extra paperwork.
Can you refinance later to get a lower rate? Absolutely!
Can you use a renovation loan to add an ADU (Accessory Dwelling Unit)? You sure can!
Final Thoughts
Buying an “ugly” home might just be the best financial decision you ever make. With the right vision, financing, and team, you can turn an outdated house into a stunning, customized dream home—all while potentially saving money compared to new construction. So, embrace the ugly, see the potential, and start your home transformation journey today!
