Foreclosures: We Have to Warn You!

Seems everyone these days thinks they can score a house on the cheap by buying a foreclosed property. There are good deals to be had, but we have to warn you, the process is complicated and risky. Foreclosure properties are much like fire, and you know the old saying, "play with fire, and you could get burned."

There are three different stages of foreclosure, each of which presents different opportunities for buyers. The first step is to figure out which one makes the most sense for you, if indeed any of them do.

Pre-foreclosure

A home goes into pre-foreclosure when a borrower has fallen behind on his payments, but the house has yet to be auctioned off.

Buyers can find pre-foreclosures by sifting through the delinquency notices that lenders file with county courthouses when a borrower misses a payment.

Some owners are open to doing what's called a short sale, which is when a buyer pays less for a house than the mortgage that is owed on it. Lenders have to agree to a short sale, and will then forgive the rest of the debt.

Often, banks are reluctant to approve of such deals since it requires them to take a loss. This process can take months and a lot of badgering before a deal goes through, and not every buyer is up for that kind of hassle.

Sheriffs' sales

Another stage of foreclosure is when homes in default are auctioned off on the county courthouse steps. These homes can be real bargains, but the process is a crap shoot.

Bidders can't inspect the property, so there's no telling how much work it needs. And there is also no telling what kind of liens there are against the home, due to unpaid taxes and so forth, which can also jack up the cost of these homes. Finally, buyers need to come with cash, ready to put 10%-20% down on the spot, and able to pony up the rest in a matter of days. This method of buying a foreclosure is not for the beginner or first time homebuyer!

Post-foreclosure

After a lender takes back a house, the property goes on the market as what's called an REO (real estate owned) property. These are treated like ordinary sales, listed with a broker. Typically, bargains are not as sharp.

If you want to dive into the foreclosure market, this is the only method we recommend you even think about. The process is fairly clean, the title is clear and the property is delivered vacant, even though the prices may not be as low as a courthouse steps auctioned property may be.

Talk to us if you feel brave and want to explore the foreclosure market. We'll let you know if there are any such properties in the market and in your price range of affordability.

Home Buying Techniques

Buying a home is an exciting and important life event. Being a first time home buyer means that you will have many decisions to make — and just as many questions that need answering.

Buying your first home is a huge step. These helpful home buying tips may reduce confusion about mortgage payments and the cost of buying a house:

• Get preapproved - Buyers should always get preapproved before they begin house hunting. Buyers should get a written preapproval from a reputable mortgage lender before they start shopping for a home.
• Calculate your mortgage payments - Buyer's mortgage payments might be the same or less than rent payments. The (principal and interest) monthly payment on a $200,000, 30-year, fixed rate mortgage with an interest rate of six percent (6.25%) is $1,231 — less than what some people pay for rent (taxes, insurance and any other fees, including closing costs, are extra).
• Share closing costs - Buyers may ask sellers to pay for closing costs. As part of the negotiating process when buying a house, the buyer may ask the seller to pay for a percentage of the non-recurring closing costs, sometimes saving thousands of dollars for the buyer.

Also ask yourself, "Is it cheaper to rent than to own?"

Here's a useful way to calculate and compare: Take the price of the type of home you want in your market. Now see how much it would cost annually to rent a similar property in the same area. For example, if you can purchase a home for $540,000 but can rent a similar one for $36,000 a year, your so-called price-to-rent ratio would be 15.

In general, buying starts to look attractive when the P/R ratio is around 15 or lower. (The current national average is 12.5.) As your market's P/R ratio falls, more sellers are likely to come into the market. So demand could pick up and help stabilize home prices.

Of course, 15 is just a ball park. While P/R ratios in many markets have come down lately, they're still high relative to their long-term average.

If you have any questions or comments, please use the comment link below and we'll respond to your question as quickly as possible. Your email address will never be published here for your privacy and protection.

Buying A House With A Low Credit Score

If your credit problem isn't too serious, you may still be able to get a traditional loan. First, you should correct any errors on your credit report, and challenge any entries you think shouldn't be there. This is your legal right. If you can get it changed, then once those changes are reflected in your credit score, you may be able to apply again and get a loan for that home.

You also can go only to lenders who hold their own loans "in house." This means they don't sell them into the secondary market, which means the loans don't have to meet certain requirements. A bank which holds its own loans can make their own rules (to an extent). Ask around to see if some of your local banks or credit unions keep mortgage loans in their own portfolio. Few do these days, but some still do. It pays to ask.

A more creative way to overcome bad credit is to buy a house with another person. This isn't only for married couples. Any two people can buy a home together, and the lender will look at both credit histories. It might be tricky to buy a house with a friend, but it can be better for both compared to renting. For example, you might have a down payment, and your friend could have good credit. You could agree to sell the home five years later to recover your down payment and each of your respective shares of the equity that is built up from appreciation and the paying down of the loan.

Seller financing is another way to buy when you can't get a loan because of bad credit. Some homes have sold without credit checks and even with nothing down by sellers who financed the purchase. Their motivation is usually to get a higher price and/or to sell a problem property, but this doesn't rule out a good opportunity for you. When sellers don't offer terms, find out if they own their houses free and clear. If so, you could make an offer that involves payments to the owner rather than getting a loan from the bank.

Real Estate: It's a Buyer's Market

It's a wonderful time to be a home buyer. An opportunity like this comes around every eight to thirteen years. Whether you are a first time home buyer, an investor; or if you have been part of the real estate market for the last several years and were hoping to move up, now is the time!

To start with, we have a huge inventory of homes on the market right now and sellers have come to realize that in order to sell their homes they have to price out their competition. This is quite a turnaround since from 2003 through to mid 2006, it was tough to find exactly what you were looking for in a home. The inventory was scarce, and if you found a home that had a few features you liked; you had better write an offer right then and there or it would be gone by the afternoon! Buyers were on a frenzied buying spree to purchase a home before someone else got it. It created a huge sense of urgency and many buyers settled for less than they wanted in a home. Thankfully that day is gone for now.

Buyers can now negotiate great deals on homes, warranties, and seller paid closing costs. And with house inventory being so high there will be some great deals to be had. Foreclosures and short sale homes are very often a great buy, but new legislation will coming into effect to protect distressed sellers from being taken advantage of make now the wise time to insure that you don't miss this buying opportunity.

The importance of being prepared when buying a home cannot be overstated. Being pre-qualified for a certain loan amount with a reputable lender is a must for two reasons: First, you know how much home you can afford; Second, you are in a stronger buying position. Your offer will be viewed more favorably if it is accompanied by a pre-qualification letter.

So find yourself a great lender who will find the best loan for you. And last but not least good luck on finding the best home for your money!

We can help you with that last one. Contact us and let us show you exactly why NOW is the time to buy real estate.

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