You love vintage clothing. You adore the oldies radio stations. Antique furniture has become your passion.
But what are the pros and cons of buying an older house and getting a mortgage for it?
“A lot of older homes have renovations and may be in as good a shape if not better than a new home,” says Cara Pierce, housing counselor at Clearpoint Credit Counseling Solutions in Fresno, Calif.
She works with all kinds of people who are hoping to eventually buy that dream house, even if they have to do some remodeling with an aging structure. She also educates them on the entire purchasing process and maintaining of a home once they buy it. An older home might have some great advantages and some disadvantages to think about, she says.
“As for purchasing an older home as compared to a new one, I would recommend that you get an inspection to be sure that if there are any major defects with the house and that you get the seller to fix it before taking possession of the house or decide not to go through with purchasing the house,” Pierce says.
When purchasing an older home, you may not have some of the latest, up-to-date appliances, dual-pane windows, granite countertops, tankless water heats and more. Also, the insulation or roofing may be older.
“The house may be less energy efficient than some of the newer homes,” Pierce says. “If that is the case, you may have higher electric and gas bills for heating and cooling, and a roof installation is in the near future. Since a roof tends to be one of the most expensive items to replace, you may want to steer clear of a house that has an older roof.”
According to Remodeling Magazine’s 2014 Cost vs Value Report, the nationwide average cost to replace a roof is $18,913. That’s a big chunk of cash to dish out if you just bought the home.
“Most home inspections don’t include the roof. The roof inspection is done by a licensed roofing contractor,” Pierce says. “That contractor will inspect the roof, fix any damaged shingles and insure that they will come and fit it if it leaks within the next two years.”
Where she is from in California, she is seeing some cities, counties and even insurance companies starting to require the roof be something other than shake shingle. A shake shingle roof is one that is made of tree bark and tends to be a fire hazard, she says.
As for mortgages are concerned, as long as the house is up to code and will pass inspection, there should be no difference in getting a mortgage on an older house as compared to a newer one, Pierce says.
However, if it can’t pass an inspection to get a regular loan, then she suggests a FHA 203K loan.
This rehabilitation loan is meant for homes that have some problems and would not otherwise be able to get the usual FHA loan.
“It allows the borrower to take a loan to purchase the house, pay for the upgrades, and even include up to six months of payments, if you need to live elsewhere while the remodeling is being done,” she says.
The work must be done by a licensed contractor. It needs to be finished within six months.
“You want to be careful that the overhaul isn’t so big that it cannot be completed during that time frame,” she says. “If the house will pass inspection but you would like to do some upgrades to the house, you could also consider an FHA Energy Efficient Mortgage (EEM).”
This requires an extensive inspection to rate the energy efficiency of the house you are purchasing. The report would also make recommendations on what changes to improve the energy efficiency and lower the energy costs.
“In the case of an EEM, it is a second mortgage to make the house more energy efficient. This could include things like installing new energy-efficient appliances, such as a stove, dishwater, heating and cooling system, ceiling fans, weather stripping, insulation and more,” she says. “The idea is that the amount for the second loan will be offset by the improved energy efficiency and will result in a net savings per month.”
The downside to the EEM is the inspection, known as a HERS rating, can be expensive somewhere between $500-$800 compared to the average regular house inspection of $300-$400, Pierce says.
If you’re going to remodel a house, and it will take a few years, assuming that you already own it, you could refinance and take cash out to do this or take a second mortgage. Whether or not the person could get a loan now or in the future will depend on the equity in the property, their income and their credit, she says.
The charm of that older house with crown moldings, beautiful fireplaces throughout the house, and amazing built-ins can be quite attractive. But just be aware of the repairs, maintenance and cost of heating/cooling before going forward on any transaction.