In the market we are currently in right now; buyers are starting their searches looking for bank owned properties or better known as foreclosures. Historically known for their decreased price value they can offer someone a better deal on a house than one that is not foreclosed on in the same neighborhood. However; like anything if it is to good to be true it may just be that.
As banks and mortgage companies are trying to recover from the vast majority of people who have short saled their homes and the ones that have let their homes go back to the bank.... credit guidleines have tightened. Banks and appraisers are under a greater scrutiny right now as they are more accountable for the loans they process and the value placed on homes. (the primary reason we are in the predictament we are in right now)
Most bank foreclosures are homes that need some work. Now, some are minor repairs or cosmetic work that makes them a very good investment for the buyer who does not mind doing the repairs themselves. But, what if the house you want to buy is in need of "minor" repairs? What type of loan will you qualify for in order to receive the financing on that home?
The vast majority (82% according to the latest figures) finance through the FHA program, VA loan program or the USDA. The programs are very popular because you only need 3.5% down of the sale price on a FHA loan and the VA and USDA will finance 100% of the purchase price. So you qualify for one of these programs and have selected a bank owned home to purchase .....what is wrong?
The appraisal has become the number one reason foreclosed homes do NOT close. The FHA and the VA especially have some strict guidelines in order to qualify the home for their financing. Most foreclosed homes do not qualify for these types of loans becuase the appraiser will demand that certain repairs be performed on the home in order for them to pass it through the appraisal process. If those repairs are not performed to the satisfaction of the apprasier the house will not pass the appraisal process and cannot close.
So, what alternatives do you have? One is to go the route of a conventional loan. This will allow you to have less rigid guidelines than the other forms of financing and in most cases the house will appraise without issues (assuming the price is in line). The problem is today most people do not have 10% to 20% of the sale price to put down on a home. That is the minimum requirement needed in order to get a conventional loan.
To give you an example. On a $150,000 sale price home; you would need $5250.00 down to get a FHA loan. Not a small feat but manageable for most people. On a VA or USDA loan you would need no down payment. However; on a conventional loan that dollar amount goes up to $15,000 to $30,000 down. Not the amount of money most people have or would want to put down. Chances are if you have the money and the home will not qualify for FHA loan; you are going to be using the money to do the necessary repairs on the home.
Though the news reports and friends are telling everyone go look at a bank foreclosure....make sure you know what your options are before you start your search.You may not be able to get the home of your dreams and the right one could be right down the road for a little more money but less down payment.
Dave diCecco
Realtor/Broker
www.davedicecco.com
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