How to Buy a Fixer-Upper House with No Money

The name says it all: a fixer-upper requires plenty of work to reach tip-top shape. 

Most buyers don’t want to put in that work, so they steer clear. That creates an opportunity to buy these run-down homes at a deep discount. 

But these properties don’t just cost money to buy, but also to renovate. It leaves many would-be buyers wondering how to buy a fixer-upper house with no money, if they’re light on cash. 

Fortunately, you have plenty of options as you explore how to buy a fixer-upper with a loan. 

Best Options for Buying a Fixer-Upper House with No Money

You don’t need six figures in the bank to buy a fixer-upper house. You do need some pluck and willingness to both get creative and roll up your sleeves, because there’s nothing turnkey about buying a fixer-upper. 

Try these strategies for how to buy a fixer-upper house with no money (or at least less than usual). 

1. Combine a Conventional Loan with Unsecured Credit

You can buy a fixer-upper home with a conventional mortgage loan — if it qualifies as “habitable.” 

That determination comes from the appraiser. As a general rule, if the property has functioning mechanical systems and no health risks or structural problems, the appraiser classifies it as habitable. 

In other words, if it only has cosmetic problems, it’s habitable. But if it has a major roof leak, foundation problems, a busted furnace, mold, radon, or any other functional issues, you can’t take out a traditional mortgage loan. 

Assuming it’s habitable, you can combine a conforming loan or government-backed mortgage with another form of financing to cover repairs. For example, you could borrow a Fannie Mae HomeReady mortgage with a down payment of just 3%, and then borrow the funds to renovate the home from elsewhere. 

“Elsewhere” could include a personal loan, credit cards, crowdfunding platforms, or peer-to-peer lending platforms. It could even mean cash flow from your future paychecks, as you set aside a certain budget each month for home improvements. 

Note that you do have to live in the home for at least one year if you buy with an owner-occupied mortgage loan. That said, some conventional mortgages specifically allow investors. 

As a final thought, this strategy lets you make the repairs yourself, or hire unlicensed handymen for some of the work. 

2. FHA 203(k) Loan

The Federal Housing Administration offers a loan program specifically designed for fixer-uppers. 

The 203(k) loan comes in two varieties: standard and streamline (also known as limited). Both allow you to borrow up to 96.5% of the purchase price plus renovation costs. 

Streamline 203(k) loans cap the renovation portion of the loan at $35,000. They come with less red tape, and work best for cosmetic repairs. 

Standard 203(k) loans allow you to borrow a combined loan amount up to the typical FHA loan limit in your market. Neither loan option allows you to make “luxury” upgrades such as installing a pool or hot tub.

As with other FHA loans, expect to jump through more hoops than a conforming mortgage loan. But the 3.5% down payment keeps this option affordable for many homebuyers exploring how to buy a fixer-upper house. 

You can’t make the repairs yourself — must hire the work out to licensed contractors. 

3. VA Renovation Loan

The Department of Veteran Affairs has a variation on the classic VA loan, to cover the cost of renovating a fixer-upper. 

Like all VA loans, only military service members or spouses qualify to borrow them. But they allow for a true no-money-down mortgage, with a 0% down payment. They also offer low interest rates and no private mortgage insurance (PMI). 

Most VA loans cap the borrowed renovation costs at $50,000 – $75,000. You must use licensed contractors, and must typically complete all renovations within 120 days of purchasing the property. 

All renovation loans operate on a draw schedule, reimbursing you in phases for the repairs. 

Like FHA loans, VA loans come with some red tape, so borrower beware. 

4. USDA Loans

Where VA loans only serve one type of borrower, USDA loans serve one type of property: rural homes. 

The US Department of Agriculture subsidizes these loans to encourage economic growth in rural communities. View the USDA loan eligibility map to determine whether a property qualifies. 

Like VA loans however, these government-backed loans allow for a 0% down payment and often an artificially low interest rate. These loans also come with lower mortgage insurance premiums than most competing loans. 

The USDA structures these similar to 203(k) loans, with a standard and limited option (restricted to $35,000 for repairs). 

5. Fannie Mae Homestyle Renovation Loan

Unlike the government-backed mortgage loans outlined above, Homestyle loans allow both homebuyers and investors. Homebuyers can put down as little as 3% on a primary residence or 10% on a second home, while investors must put down at least 15%. 

The loan program allows borrowers to take out as much as 75% of the after-repair value of the property. 

Homestyle loans do require higher credit scores than most government-backed loans. While the program technically allows borrowers with scores as low as 620, it’s easier to get approved with scores over 650. 

These loans do allow you to make luxury additions to the property, unlike 203(k) loans. 

6. Freddie Mac CHOICERenovation Loan

Never to be outdone by its bigger sister agency, Freddie Mac offers a similar loan program for fixer-uppers.

The program looks virtually identical, with one exception. CHOICERenovation loans do allow disaster-proofing and other resilience upgrades, while Homestyle renovation loans don’t. 

7. Portfolio Loans from Credit Unions & Community Banks

The term “portfolio loan” refers to a loan that the lender plans to keep within its own portfolio, rather than selling off immediately after closing like conventional lenders do. 

That means these lenders don’t have to conform to rigid loan programs. They can set their own lending rules and standards, making them far more flexible. 

For instance, if you want to buy and renovate a luxury home that exceeds the limits prescribed by 203(k) loans or conforming loans, a portfolio loan could do the trick. Luxury upgrades? Home additions? Disaster-proofing? No problem. They also work with investors, not just homeowners. 

Flexibility comes at a cost however — these loans tend to cost a little more than conventional loans. Expect a slightly higher down payment and interest rate. 

8. Private Loans

No one says you have to borrow money from a bank or corporate lender at all. 

You could approach your friends and family members to negotiate a loan. On the plus side, they probably won’t charge you lender fees, just interest. That alone could save you thousands, even if you pay a higher interest rate than a bank would charge. 

You also avoid restrictions such as having to use licensed contractors and not installing luxury upgrades. You can borrow as much or as little as your friends and family are willing to lend.

On the other hand, you risk your personal relationships if something goes awry. It can make for an awkward family dinner if you default on your payments, or come back to them hat in hand halfway through the renovation asking for more money due to budget overruns. 

9. Home Equity Line of Credit (HELOC) or Second Mortgage

Have another home with plenty of equity? You can borrow against it to cover the cost of buying and/or renovating a fixer-upper. 

For example, say you want to buy an ugly but habitable fixer-upper and do the repairs yourself. You could buy it with a conventional mortgage, and then take out a second mortgage or HELOC against your existing home to finance the renovations. 

A home equity loan (usually a second mortgage) is a fixed-term loan, like your first mortgage. In contrast, HELOCs offer a rotating line of credit. You can draw on it to fund home repairs, then pay it back at your own pace. These credit lines usually come with floating interest rates. 

If you have enough equity, you could theoretically finance the entire purchase and renovation of a fixer-upper by taking out a home equity loan or HELOC against your existing property. 

10. Cash-Out Refinance

Alternatively, with enough equity in another home you could refinance your first mortgage and pull out cash to cover renovation costs or even the purchase of the new property. 

As with home equity loans and HELOCs, you’ll need to pay for a new round of closing costs to borrow against your existing home again. Those closing costs won’t be cheap either — expect to pay thousands of dollars between lender fees, title fees, attorney fees, recordation fees, and so forth. 

11. Grant & Loan Programs

Some state and local governments offer grants or subsidized loan programs to spur investment in disadvantaged areas. Nonprofit organizations also sometimes offer similar programs. 

By making it easier for homeowners to buy and renovate local homes, they boost revitalization efforts in the community. 

12. Equity Partnerships

Investors sometimes go in on flips together, often with one partner providing more of the capital and the other providing more of the labor. 

For example, if you’re a contractor, you might do all the renovation work while your partner fronts the down payment and closing costs. Consider it one more avenue for buyers wondering how to buy a fixer-upper house with no money. 

This approach doesn’t usually make sense for homebuyers however. 

13. Combine Alternative Funding Sources

When investors flip houses with no money down, they often do it by combining disparate types of financing. I once bought and renovated a low-priced property with a few credit cards, for example. 

You can combine sources ranging from credit cards, HELOCs or HELs against other properties, personal loans, peer-to-peer loans, crowdfunding, hard money loans, and private loans to cobble together enough money to buy and rehab a fixer-upper. 

By doing so, you avoid restrictions such as having to hire licensed contractors, if you’d prefer to do the work yourself. But unsecured credit typically comes with higher interest rates. 

Still, many of these credit sources allow you to repay them on a flexible basis. You can always refinance the property with a long-term mortgage once you complete the renovations, to pay off these more flexible credit sources and lower your interest costs.

Advantages of Fixer-Upper Houses

Fixer-uppers come with plenty of perks and upsides. Keep these in mind as you explore how to buy a fixer-upper house.

Affordability

Dilapidated houses cost less than sparkling move-in ready homes. Hard stop. 

Even including renovation costs, they still usually cost far less than turnkey homes. That’s the whole point: you score a bargain in exchange for taking on the headaches of renovation. 

Customization

When you buy a fixer-upper to live in, you can personalize it to meet your unique needs. 

You choose the fixtures, the look, the style. Want a farmhouse kitchen rather than a modern one? No problem. 

You can even customize the layout if you like, removing or adding walls to suit your desires. 

Profit Potential from Forced Equity

Because the after-repair value is much higher than the combined purchase price and renovation costs, you have the ability to earn a profit. It’s the entire business model behind flipping houses, after all. 

In the industry, we refer to “forcing equity” through property improvements. You might spend $40,000 on repairs, which adds $70,000 to the property value. 

Several Exit Strategies

You could flip the fixer-upper immediately for a profit, of course. 

Or you could move into it as your primary residence. Or you could keep it as a rental property, in a strategy known as BRRRR (buy, renovate, rent, refinance, repeat). 

In fact, the BRRRR strategy sometimes allows you to pull all of your initial down payment back out of the property. While it doesn’t quite solve how to buy a fixer-upper house with no money, it does reimburse your money quickly. 

Reduced Tax Strategies

If you hold a fixer-upper for at least one year, the IRS taxes your profits at the lower long-term capital gains tax rate.

If you move in for at least two years, you qualify for the homeowner exclusion, also known as the Section 121 exclusion. Single taxpayers are exempt from capital gains taxes on the first $250,000 in profits ($500,000 for married couples).

Renovate on Your Own Timeline

Consider the implications of the homeowner exemption, if you do a live-in flip.

Imagine you buy a fixer-upper, move in, and renovate it at your own pace over the course of two years. You then sell it for a tax-free profit up to $500,000 if you’re married.

Rinse, repeat, keep pocketing the profits. 

It works particularly well for DIY hobbyists who enjoy doing home improvement projects on their nights and weekends. 

Develop Home Improvement Skills

Likewise, if you have the luxury of time and want to do the work yourself, you can take the time to tinker at home and develop your skills as you go. 

As outlined above, not all renovation loans allow you to make the repairs yourself. But if you finance the fixer-upper in a way that lets you DIY, you can learn valuable skills at your own pace.

Community Revitalization

Areas suffering from blight or decay can turn around as buyers come in and invest in renovating once-dilapidated houses. 

Fewer vacancies leave less room for crime and pests to gain a foothold. Lower vacancy rates boost demand and improve other home values in the neighborhood, in an upward cycle of recovery. 

Downsides & Risks of Fixer-Upper Houses

Fixer-uppers aren’t all rainbows and butterflies, of course. They come with real risks and drawbacks, or else everyone would buy them. 

Watch out for the following as you learn how to buy a fixer-upper house. 

Financing Challenges

While you now know how to buy a fixer-upper with a loan, that doesn’t mean any of them are as straightforward as simply buying a turnkey home. 

Expect delays and complications at every turn. You’ll likely need to submit a scope of work to your lender along with the signed contract with the contractor, negotiate a draw schedule with the lender, and a half dozen other headaches. Lenders may nitpick the work before releasing your draws, for example.

You may pay higher interest rates, and you will almost certainly pay higher fees, such as an inspection fee each time the appraiser or lender’s inspection comes out to the property to check on your work. 

As a general rule, the cheaper the financing, the more red tape and restrictions you can expect. 

Risk of Cost Overruns

Professional real estate investors always budget extra for cost overruns, because they know how often renovation projects cost more than their contractors initially promise. 

If you’ve buying a fixer-upper as a homeowner, you may have never worked with contractors before. They can prove exceedingly challenging to work with, and often come back to you midway through a project to explain why it will cost far more than planned. 

Risk of Delays

Renovation timelines get blown just as often as renovation budgets. 

Keeping contractors on-schedule and in-budget is a skill set in itself, and one that usually takes years to master. And make no mistake: in renovation projects, lost time is definitely lost money. You have to pay for carrying costs such as loans, utilities, insurance, and property taxes regardless of whether the house is livable. 

Risk of Real Estate Market Changes

Imagine you buy a house with an estimated ARV of $400,000. But after four to six months of renovations, market conditions can change. 

If home prices drop 10% in that time, that same house ends up worth $360,000 upon completion, rather than the projected $400,000. That could wipe out your entire profit on a flip, or leave you unable to pull your down payment back out on a BRRRR investment. 

Risk of Over-Improvement

It’s all too easy to over-improve a home. And the more you customize it, the less likely a buyer is to pay extra for your costly customizations. 

You could easily pay $5,000 for an upgrade, only to have it boost the property value by just $2,000. When in doubt, check with a real estate agent before making any optional home improvements. 

How to Find Fixer-Uppers

Where can you find fixer-upper houses for sale? 

You can find some publicly listed for sale on the MLS, of course. But often the best deals lie elsewhere — where you have less competition from other buyers. 

As you learn how to buy a fixer-upper house, consider the following avenues for finding them.

REO Properties

When banks foreclose on delinquent mortgages, in nearly all cases they retake ownership of them. 

These properties get added to their “real estate owned” portfolio, or REO for short. Banks aren’t in the business of owning and operating real estate, so they sell them. 

They often work with local real estate agents to help them do so. If you learn which local Realtors specialize in REO properties, you can establish a relationship with them and let them know you’re in the market to buy a fixer-upper. They may contact you when a new one comes across their plate, before listing it publicly on the MLS. 

You can even develop relationships with the REO managers at local banks and credit unions. They too can reach out to you as new REO properties hit their books. 

Pocket Listings

Realtors sometimes know about owners who would be willing to sell, but who haven’t yet listed their property for sale. We call these pocket listings in the real estate industry. 

Again, networking with real estate agents — especially those who often work with fixer-uppers — can help you discover off-market properties to buy at a discount. 

Driving for Dollars

One oldie-but-goodie strategy for finding fixer-uppers is simply driving around looking for run-down or vacant homes, and then contacting the owner to inquire about buying. 

Known as driving for dollars, it makes for another tried and true strategy for finding off-market properties. 

Non-MLS Websites

To this day, people buy and sell houses on Craigslist, Facebook Marketplace, and other classifieds-style platforms online. 

Start poking around in your local groups and classified websites. You never know when you’ll find a hidden gem. 

Other Word-of-Mouth Networks

If Craigslist sounds old school, then what’s word-of-mouth as a way to find fixer-uppers?

Ask around among your friends, family members, colleagues, neighbors, third cousin once removed. Do they know anyone with a run-down property that they’d love to unload?

Real estate investors take this strategy further and systematize it. Many develop a network of local “bird dogs,” or well-connected people who pass on leads to them. The investor then pays them handsomely for every lead that closes. 

Examples include bartenders, baristas, barbers, and hair stylists. Postal workers also make great bird dogs, because they’re often the first to know when a property becomes vacant. 

Start expanding your word-of-mouth network to find off-market fixer-uppers at a great price.

Auctions

Auctions offer another classic option for how to buy fixer-upper houses.

Homes end up at auction through many channels. Some go to auction via estate sales, or tax sales, or a distressed sale with a looming deadline. Sometimes the seller just doesn’t want to wait around letting the house sit on the market. 

Just make sure you know your numbers before bidding at an auction. Know the ARV, know the renovation costs and carrying costs, know both sets of closing costs, and know your maximum allowable offer. 

Distressed Sellers

Finally, explore buying distressed properties. 

The most common strategy for buying distressed properties is pre-foreclosures. Consider reaching out to property owners in foreclosure, offering to buy them out before the sale date. 

You can also reach out to other distressed sellers facing tax sales or other liens looking to collect. Distressed sales often offer the best discounts — which is why investors face so much competition in buying them. 

Rules to Avoid Losing Money on Fixer-Upper Homes

You need to know what you’re getting yourself into before pulling the trigger on a fixer-upper. Follow these best practices to avoid losing money:

• Know your numbers: As touched on above, make sure you’ve calculated your maximum allowable offer, including a buffer for cost overruns. 
• Do a home inspection: Likewise, you don’t want any surprises. Make sure you know every repair that a property needs before closing on it.
• Start with cosmetic updates: If you’ve never renovated a fixer-upper before, start with one that only requires a cosmetic overhaul. Avoid structural or mechanical problems, as they add complications and risk.
• Understand the permit process: When you make mechanical or structural repairs, you often need to pull permits. That means you need a licensed contractor and you’ll need to undergo inspections. If the local municipality has tagged a house as uninhabitable, you’ll also need to pull a use and occupancy permit. 
• Start small with contractors: Test contractors with small jobs first, and gradually offer them larger jobs as they prove they can stay in-budget and on-schedule. 
• Find a top-notch Realtor: Work with an outstanding real estate agent who specializes in fixer-uppers.

Final Thoughts

While you can learn how to buy a fixer-upper house with no money, most strategies do require some money up front from you, even if you can get your investment back relatively quickly. 

You can force appreciation fast by renovating a fixer-upper home. And you have several exit strategies at your disposal, from flipping to refinancing as a rental to moving in yourself. 

Or you can DIY the repairs, for a leisurely live-in flip. 

But no matter your endgame, make sure you work with a professional team including an expert Realtor, home inspector, contractors, lenders, and more. Renovating dilapidated homes is a team sport, not a solo endeavor, so find the partners you need to reliably earn a profit from it.