What Type of Home is Best for Me?
There's going to be a lot more buyers this year, partly due to incentives like Obama's slashing private mortgage insurance by 40% which is already being rolled out. Many buyers just starting out are asking what type of home is going to give them the best deal.
First, buyers should understand the types of homes that are available on the market and will help them be prepared no matter what property catchers their eye.
Let's start with HUD and foreclosures. I come across buyers all the time, convinced that one or the other is going to proffer a better deal. That's a myth.
It's common knowledge a foreclosure happens when the bank's acceleration clause kicks in according to their time frame and policy of when a seller gets too far behind in payments. Keep in mind, a bank's asset manager is not a Realtor, they don't really understand what a home is worth not having done true comparative market analysis and a crap shoot on what value they place on it. Generally way to high. The property goes to Sheriff's Auction and almost guaranteed not to sell and the property becomes an "asset" on the bank's books.
Then, after not having sold at auction, the bank's REO (Real Estate Owned) agent, a Realtor that works with the bank will have the home dunged, broom swept, loosely prepped and then is listed on the market as a foreclosure. Most often the home is still overpriced at this time and it takes time for the asset manager to realized the home isn't selling because the price is too high, eking down over time with price drops or the bank finally accepts the highest low offer.
Some foreclosed homes are in decent condition, but much of the time this whole process can take several months to over two years before the home is actually listed for sale. In the meantime, devaluing as it's unkept and not maintained. Vandals, copper thieves, animals etc. When a home isn't allowed to "breathe" mold becomes an issue, or sump pumps don't work with the power off during torrential rains and other harmful events take place.
You may be wondering about buying a home that needs repairs
There isn't much difference between a HUD home and a foreclosure. If FHA (Federal Housing Authority) guaranteed the loan, instead of becoming an asset of the bank, the bank is paid off and the property goes to Housing and Urban Development. This is a private entity contracted by the government who's mission is to give first crack at purchase to owner-occupants and if no reasonable offer comes in during the first couple of weeks, the bidding is then opened up to investors.
Only a Realtor can place a bid on a HUD home for you, even the government knows it's best to have professional representation when buying a home. Instead of submitting an offer in the traditional fashion, your bid is placed by an agent on a HUD website.
As with foreclosures, a small portion are in decent condition, but you'll see the same damage over time that can occur with foreclosed properties.
A "for sale by owner" home may or may not be the right choice for you. Many times a FSBO will tell a prospective buyer they will sell their home to them as long as a Realtor is not involved. Do they have something to hide and are afraid that a real estate professional will discover what it might be? Are there hidden liens or defects with the home the seller doesn't want the buyer to become aware of? A professional buyer's agent's (a Realtor) role is to protect buyers. It is unwise to not have professional representation.
Sometimes, there might not be anything wrong at all with a FSBO. The seller is simply very tight on their mortgage and cannot afford to pay Realtor fees. (In southern Ohio, the seller of a home is almost always responsible to pay any brokerage commissions)
If a buyer wants to purchase a FSBO badly enough and the seller refuses to pay the brokerage commissions, there is nothing to say the buyer cannot pay the commissions out of their own pocket. At least this way, they will have the backing of the Realtor and their brokerage in a transaction.
For best success, buyers shouldn't worry or concern themselves with the type of property ownership; HUD vs. Foreclosure, etc. Simply find homes that meet your needs, are within the budget. This keeps more options on the table.
The same as a FSBO, only the use of a Realtor is employed. By the way, if you're buying a home why would you call the name and number on the yard sign? You'll be speaking to the agent or Realtor that promised to net as much as possible for the seller. That agent doesn't work for you, but represents the seller. Use a professional buyer's agent.
These could also be homes by contractor-builders, but still wise to have professional representation.
Homes That Need Repairs
Many buyers who consider themselves handy or capable set about buying a distressed home with the idea of performing repairs themselves. That's fine if you're a cash buyer, but not going to happen if you are financing. Federal law prohibits buyers that are financing from doing the repairs themselves.
This is where the ever-handy FHA 203k , or renovation loan comes in handy. Not only does it have a low down payment, 3.5% and in some cases 3% down, funds for repairs are structured into the loan. Many buyers start looking at very low dollar distressed properties but upon realizing the cost is going to go up when they cannot do the repairs themselves begin looking at a more "normal" range of price.
Let's say you spot a beauty full of potential, and make an offer of $75,000, repairs are estimated at $28,000, your total loan would be $103,000 with a down payment of $3,713 at 3.5% down. You do have some control over materials, color choices etc.
The reason for this, in the past, many that would do the repairs themselves never accomplished the repairs and the property dragged other home values down for remaining distressed or not improving. Wonderfully, these loans can be done with credit scores starting at 580 provided loan to value ratio and debt to income ratios are satisfied. There are even some exceptions and extra help or leniency in certain circumstances. Ask your Realtor for lender referrals that specialize with these type of loans.