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By James A. Gage
RIGHT NOW,
IT'S anyone's guess when the housing downturn will finally
hit bottom. But if you're looking to buy a home now - and
plan to stay in it for a while - there are plenty of
bargains to be had on a foreclosed property.
Banks are often willing to sell foreclosed
homes for up to 20% below market value just to get these
troubled properties off their books! With foreclosures at an
all-time high in the past year, there's no shortage of these
opportunities to pursue. However, prospective buyers should
know that closing on that super-cheap distressed home is
often a lot more complicated and risky than buying a home
that doesn't have all of that financial baggage.
Finding Properties in
Foreclosure
The
biggest bargains can be found in areas where there's a large
concentration of distressed properties. The banks with the
most exposure to these areas are typically the most
motivated to cut a deal since they don't want to get stuck
with a glut of real estate. But before you snap up the
cheapest home you can find, make sure to do some research.
Find out if the property is located in a decent neighborhood
with good schools and healthy employment rates. (Local real
estate web sites are a great place to start your research.)
If you buy in an area that's losing jobs and is riddled with
crime, home values are likely to take a lot longer to
recover.
Avoid Auctions
While there are a number of safe ways to buy a foreclosed
property, bidding on one at a court auction isn't one of
them. That's because you're buying a home sight unseen and
without an inspection, and 99.9% of the time the 1st
mortgage holder buys it back any way.
Some of
these properties also owe back taxes, a headache that's
transferred to the new owner. And finally, in most cases,
you'll need to pay cash for the home.
If you really want a property and come up empty on your
short sale offer you can wait until the bank has put it back
onto the real estate market. These properties are called
bank-owned or real estate-owned (REO). Before a bank hangs a
"For Sale" sign, it pays off all the existing debts and
taxes, and in many cases, repairs the home to bring it up to
the standards of the neighborhood. Best of all, you should
be able to buy a bank-owned property with a traditional
mortgage.
Research Home Values
Just because a home is being sold by the bank, doesn't
necessarily mean it's a bargain. Home prices have fallen
dramatically from their peaks in 2006, a time when
loose-lending practices allowed people of all credit ranks
to easily obtain mortgages. Now, many homeowners going
through the foreclosure process owe more on the mortgage
than their property is actually worth; this is known as an
“upside own property”.
If you fall in love with a home in pre-foreclosure that's
overpriced, then you can see if the bank will allow a short
sale. This is when the bank accepts less for the home than
the amount owed on the mortgage. While not an ideal
scenario, accepting a lower price is often in the bank's
best interest. Banks typically spend $25,000 to $50,000
during the foreclosure process..
Line Up Financing First
While it's always a good idea to get pre-approved for a
mortgage before you start shopping for a home, it's even
more critical when you're shopping for foreclosed
properties. Even if you have stellar credit, some lenders
won't make a loan on a distressed property, others will
require an approval letter rather then a pre-approval letter
– especially if you are doing a short sale.
If your loan officer is willing to make a loan on a
foreclosed property, find out what criteria the home needs
to meet in order to qualify for a mortgage. You can expect
the lender to allow cosmetic repairs, but be unforgiving of
termites and other serious fixes. However, if you are going
to live in the property yourself check out the HUD 203K
program; if you will be the owner occupant, because repairs
can be rolled into the loan and down payments are very low –
Hud.gov.
Get It Inspected
Even if a home is brand new you want to get it inspected.
But inspections are especially important when you're dealing
with homes in foreclosure. When people have trouble paying
their bills, they typically put off the regular maintenance
on their homes. Once a home is seized by a bank, it then
sits vacant and falls even further into disrepair. In a
worst-case scenario, a homeowner could be so angry he lost
his home that he actively destroys a property before he
moves out. Without an inspection, you won't be able to
estimate the cost for repairs or be able to report the
home's true condition to your lender.
"You are who you are and where you are because of what you
have put into your mind."
For more information or pricing please do not hesitate to
call or e-mail. I can be reached at : (508) 595-9567.
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