What Does Buying A House ‘As Is’ Mean And Should You Do It?

If you’re on the hunt for a new home, you may come across homes listed “as is.” While the prospect of buying an as-is home may sound tempting due to its typically lower pricing, you should consider a few factors to help determine whether an as-is home is right for you.

Let’s discuss the pros and cons of buying a home as is and how it may affect your home buying experience.

What Does As Is Mean When Buying A House?

An as-is home is a home sold in its current condition. Sellers don’t make any repairs, renovations or cosmetic touch-ups before listing.

When a home is sold as is, there’s no guarantee it’s in perfect condition. In fact, the potential TLC an as-is home requires is usually reflected in its price – which is typically less expensive than standard home listings. For example, foreclosed homes may be move-in ready, but there’s also a chance they weren’t well maintained.

That’s not to say buying an as-is home is equivalent to purchasing a fixer-upper. The house may present no major issues, and the seller listed their home as is to speed up its sale.

Does Sold As Is Mean The Entire Home?

As is may not apply to the entire house. Some sellers list particular features as is to avoid contracting out a renovation project or dealing with a minor repair before listing their home. Just clarify with the seller which parts or components of the home are as is before entering negotiations.

Also, as-is homes must meet minimum federal and state disclosure and inspection standards, which ensures a buyer’s health and safety regardless of the rehab projects associated with the property.

What To Consider When Buying A Home As Is

Like any big decision, you’ll want to carefully consider whether buying an as-is home works for you and your circumstances. Here are some as is best practices to help guide your decision.

Get A Home Inspection

To understand the potential financial commitment of an as-is home, get a proper home inspection. Your inspector can point out any significant issues with the house and possibly estimate the costs for repairs and renovations. If the home is at risk of damage from wood-destroying insects (WDIs), such as termites, fold in another layer of protection with a pest inspection.

Unlike an appraisal, which determines a home’s value and is a requirement for a mortgage loan, home inspections assess the safety and condition of a property. An inspection will help you better understand what work a home will need. You should add an inspection contingency to your purchase agreement, allowing you to back out of the sale if the inspection uncovers major problems.

Home inspections are also critical because they can offer leverage while negotiating the purchase price. If the seller refuses a home inspection, it may be a sign that a larger issue hasn’t been disclosed or discovered.

Get A Home Warranty

A home warranty contract is also worth looking into, especially when the home doesn’t require a head-to-toe makeover. A home warranty policy can protect you if the as-is home you’re interested in only lists certain home features as is – particularly appliances.

Home warranties are service contracts that cover your home’s appliances and systems for 1 – 2 years. Home warranty policies cover necessary repairs or replacements for major home appliances or systems whenever they need an upgrade or breakdown.

Most policies don’t cover existing repairs or issues. If you’re unsure about the age or condition of a major appliance, a home warranty can cover you if anything goes wrong in the future.

Ensure Minimum Property Requirements Are Met

Real estate investors like as-is homes because they’re inexpensive and provide opportunities to hone their house-flipping skills. Purchasing an unlivable as-is home won’t scare away an investor because they’re confident about the property’s profit potential.

However, most mortgage lenders won’t feel the same way if the property doesn’t meet a certain level of livability. Known as the minimum property requirement (MPR), most government-backed loans require proof through a formal appraisal that confirms the property meets the livability standard.

Although minimum property requirements will vary depending on your lender and loan type, we’ve compiled a list of common loan types and their MPRs.

FHA Loans

Most homes in need of a total renovation won’t meet the minimum property requirement standards for Federal Housing Administration (FHA) loans. The as-is house must be structurally sound, safe and secure at the time of purchase to qualify for an FHA loan.

VA Loans

VA loans, which are backed by the Department of Veterans Affairs and offered as a benefit to qualified active-duty service members, veterans and surviving spouses, have stricter MPRs than other loans. The MPRs for VA loans include safe drinking water, capable mechanical systems and a roof in good structural condition.

USDA Loans

U.S. Department of Agriculture (USDA) loans are used to purchase homes in USDA-designated rural or suburban areas. Common MPRs for USDA-eligible homes include a sound foundation, an up-to-date electrical system and well-functioning HVAC and plumbing.

Calculate Repair Costs

The down payment and closing costs are some direct, upfront costs to buy a house, but you should also account for repairs. A talk with the home seller may reveal additional costs you’ll need to factor in or prompt you to hire a home inspector to get a more accurate estimate.

Ideally, buying a home as is stashes more money in your pocket for remodeling or renovations because you save on the lower home sale price. Depending on the home improvement projects, you should also factor in the cost of hiring a repair person or contractor.

Work With A Real Estate Agent

For most big real estate decisions, consulting with a trusted and experienced real estate agent or REALTOR^® can be a huge help. If you’re on the fence about buying an as-is home, a real estate professional can offer guidance that aligns with your budget and circumstances.

Agents typically have a vast knowledge of their local housing market. They can help you make an offer on a house, negotiate with a seller and help you determine whether investing in an as-is home is worthwhile.

Pros And Cons Of Buying A Home Sold As Is

Let’s review some advantages and disadvantages before you decide on an as-is property.

Pros

Here are some ways you can benefit from buying a house as is:

• As-is listings are usually less expensive.
• As-is homes typically close faster.
• As-is homes are great fixer-upper projects real estate investors can fix and flip for a profit.
• You’re less likely to get into a bidding war with other prospective home buyers.

Cons

Here are some possible drawbacks you may experience buying a house as is:

• As-is homes can have hidden costs, including costs to make major repairs or fix defects.
• As-is homes in poor condition may disqualify you from certain loans.
• Some states don’t require a Seller’s Disclosure. In those states, buyers are responsible for identifying issues with any property – as is or otherwise.

Tips For Buying A Home As Is

Before you sign on the mortgage agreement’s dotted line, use these helpful tips for buying an as-is home:

• Hire a real estate attorney: A real estate attorney can help protect your rights, help you navigate and understand the Seller’s Disclosure and provide guidance during the entire home buying process.
• Get a title search: Your real estate attorney can conduct a title search to ensure the property’s title is clear of potential issues and confirm that the sale can proceed.
• Review the deed: To check for red flags, you or your attorney should look for easements or liens on the property deed.
• Ask questions: To help feel confident about your pending purchase, ask the seller questions about the property. Just because their home is listed as is doesn’t mean you can’t ask questions.
• Consider home warranty options: A home warranty protects against unexpected repairs or replacements with major appliances, home systems or as-is home features, potentially saving you money compared to paying out of pocket.

Should You Buy An As-Is House?

An as-is house may not work for every home buyer, especially first-time home buyers. Weigh the pros and cons of an as-is house with your lifestyle and finances. Consider the delays you may experience if the home doesn’t meet the livability requirements of your mortgage loan. And check your savings to make sure you have enough money to cover costly, unforeseen renovations or repairs.

Establishing a relationship with a lender early on and securing a preapproval is a crucial first step. It gives you a better picture of what you can afford for a home, which will help strengthen your purchase offers.

The Bottom Line: An As-Is House Can Be A Great Deal (But Use Caution)

For some home buyers, an as-is home can save money or let them tackle an exciting renovation project. But, some buyers end up spending significantly more time and money than they bargained for to rehab a home.

Learn as much as you can about an as-is property before buying it. Consider how it may affect your loan options and how much time and money repairs may cost.

Interested in buying a home as is? Start the approval process for a home loan with Rocket Mortgage^®.