Buying a Foreclosure or Short Sale Home

Posted by on Thursday, May 7th, 2015 at 10:27am.    1863 Views

Are you looking to buy a foreclosed or a short sale type of home, if so, read on…

Buying a foreclosure or short sale can be a great way to purchase a home, but there can be issues with the process.

When buying a foreclosure or short sale many things can happen and you need to be armed with knowledge so that you aren’t surprised if and when they occur.

foreclosed homesThese types of homes are almost always in need of repair, some might be minor, but some could be major.  It’s always best to assume the home will need repairs so you should be prepared mentally and financially.

If you are a cash buyer, you will not have to be concerned with “lender required” repairs, but still need to be aware of a few other potential issues.

If you are buying the home with lender financing, you need to be aware of the different products available.  An FHA 203k renovation loan will cost you a lot of money over a 30 year mortgage.  They have higher closing costs and the interest rate is typically about 1/3 point higher as well.  You can NOT do any “appraisal required” repairs yourself.  You will need to obtain repair estimates from a few FHA approved contractors and have them submitted to the lender by your agent.  The repairs will need to be completed after the closing has occurred within a short time period.  The FHA 203k product also requires you to have a better credit score than a standard FHA 203b loan, making it a little more difficult to be qualified for.  The closing will also take anywhere from a few extra weeks to several weeks longer to close than a standard FHA mortgage.  The home must appraise at an amount that equals or exceeds the purchase price plus the repair estimates.

A more reasonable and possible mortgage is similar to what you might be able to get when buying a HUD owned home.  It is called an FHA 203b with repair escrows.  It’s similar in many ways to an FHA 203k, but is must less costly. The interest rate and closing costs are the same as a regular FHA mortgage, but there is a nominal charge to setup the repair estimate account. The amount of repairs cannot exceed $5,000 with this product.  The home and the amount of repair estimates must be equal to or exceed the appraised value of the home.  The repairs must be “appraisal required” meaning that you cannot simply finance new carpeting or paint just because you’d like to have them.

In most transactions of these types, you are buying the home “as is”.  In most cases, the seller will NOT make any repairs, but in some cases, I’ve been able to achieve credits for the buyer for the repairs needed.  Keep in mind, the seller may or may not do either.

These are some of your options for purchasing a home in need of repairs, whether it is a cash transaction or financed and apply to both foreclosures and short sales.

When submitting an offer on either type of sale, please understand, the SELLER/LENDER holds all of the cards.  With a foreclosure or short sale purchase, the bank/lender/owner can be very easy to work with or they can be very difficult.  If you get frustrated and say that you are “moving along”, they will simply reply with, “Go ahead, we’ll find another buyer”.  The bottom line is they already know their home is priced very low to begin with and won’t any have trouble finding another buyer.

One of the most common issues with closing on a sale of either type is the length of time that it takes to get to the closing table.  A short sale can take several weeks or even months longer to close than a regular type of home purchase.

A foreclosure purchase can also take a lot longer (sometimes as much as 8 weeks longer) because the foreclosure deed transfer process does not begin until the seller (lender) receives an accepted offer/contract which may cause significant delays.  However, once the deed has been transferred and the seller is ready to close, they can be very impatient with you if you aren’t ready to close!  They have the option to extend the contract with per diem fees (daily penalties) or cancel the transaction altogether.  In many cases, the seller might extend the contract w/o per diem fees.  It’s done on a case by case basis.

No matter what type of home you decide to buy, make sure that you have it thoroughly and professionally inspected!

It is your agent’s responsibility to make sure that your contract does not expire, so please make sure that you are working with an agent who is familiar with these types of sales.

I am very capable of handling all of your real estate needs and would be glad to assist you with your next home!   

2 Responses to "Buying a Foreclosure or Short Sale Home"

Greg Hancock wrote: Thanks for posting this Marty, I don't think many buyers realize what a "crap shoot" short sales can be ... they're for the patient buyer for sure ... nice article!

Posted on Sunday, May 31st, 2015 at 11:57am.

Marty Snyder wrote: Thanks Greg. I'm glad you liked my article.

Posted on Monday, June 1st, 2015 at 12:46pm.

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