Buying a home is the American Dream. Everyone would like to have there own piece of homeownership. With the real estate boom dead in the water, the market has become plagued with foreclosures. The chatter all over the U.S. is to “buy a foreclosed home; you will get a great deal.” This is partially true, but there are lots of issues when trying to buy a foreclosed home in this market. Below are some of the issues.
Financing on a foreclosed home
Most people will need a loan with a bank to buy a foreclosed home. Banks don’t particularly like financing a foreclosed home that has problems. While you are out looking for a foreclosed home you will find that these foreclosed homes typically are not in good condition and need some work. This is one of the issues with buying a foreclosed home.
Foreclosed homes purchased “as is”
When you are out looking for a foreclosed home you will discover that a bunch of these homes say “AS IS.” You might be wondering what this means….? Well that means the bank is selling the home in the condition it is in, and will not repair anything. So let’s assume your offer gets accepted, and the appraiser notes there are some issues with the home. A bank will require those issues to be repaired. At this point you are stuck. So make sure your realtor is seasoned and understands what banks are looking for.
FHA loans
F.H.A. loans are the most attractive currently because this loan only requires a 3.5% investment from the borrower. When it comes to guidelines, this loan has higher standards on appraisal requirements. The banks know this, and may not even accept FHA offers. So with this being said, you may be required to go Conventional on your loan which requires 5% down and much higher standards on credit requirements.
Closing Cost assistance from Bank
When negotiating on a home, it’s a common practice to have the seller pay 3 to 6% of your closing costs. This of course depends on the loan type, because some loans only allow 3% seller closing cost assistance. Some banks will not pay anything, and in other situations you might find yourself competing with multiple offers. The offer that is the best obviously wins.
These are some of the real life problems with buying a foreclosed home. Do your research before you buy a home that has been foreclosed. Also make sure your realtor and lender are experienced before using them.
Author: Mike Clover
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