Foreclosures are down in 2013 compared to the last 5 years or so. However, foreclosed homes continue to exist and home buyers still find them in the housing market for sale. Since these properties often come at a price significantly lower than occupied homes for sale, a lot of home buyers consider them “good deals.”
Yes, the process of buying a foreclosure can come with it's own set of obstacles and headaches. However, it can also come with it's own set of benefits.
Let's look at what issues typically come up right away with REO properties.
Foreclosures: Vacant Homes Without Caretakers
Many foreclosed homes sit vacant for some period of time. It could be a couple months or it could be several years. The point to take away is that the house has no one to care of maintenance issues. If a “big bank” owns the home because of foreclosure, it rarely has a company taking care of things like winterization, leaks that may occur or critter infestations.
If a personal seller lists a house, they’re likely to keep up on cleaning the gutters to avoid water in the roof or in the basement. Someone selling a house likely maintains the yard and keeps mice or other pests out of the house. If a furnace or water heater has a problem, the seller will fix it before listing the house most of the time.
As a potential buyer of a foreclosed home, you’re looking at a house that could possibly have water damage, broken windows, raccoons in the ceiling or peeling paint inside and out. Since no one is taking care of the house, no one will make these repairs.
Renovations, repairs and other remodeling is left up to the buyer. Most foreclosed homes sell “as-is.” This means you buy it, no matter the condition. Be prepared for an interesting time.
So what is a buyer to do? How do you finance the purchase and renovation of a foreclosed home? You actually have several options when it comes to buying a foreclosure, depending on several factors.
The FHA 203k loan can help many buyers purchase and fix up a home, with a 3.5% down payment (3.5% of the purchase price and renovation budget combined). One of the most flexible renovation mortgages is the option from FHA called the 203k loan. This covers a Full 203k and the Streamline 203k, depending on the scope of the repairs and the kind of renovations you may finance.
The 203k loan is more flexible on the kinds of repairs a home buyer can finance, as well as the kind of house. The property doesn’t have to be a Fannie Mae-owned property as it does with HomePath Renovation. With the 203k, a buyer like you can use the funds for simple upgrades to your home like a kitchen or bath improvement, or for more in-depth rehabilitation like rebuilding a house that is presently unlivable.
HomeStyle Renovation financing is another option for home buyers considering the foreclosure market as an option. HomeStyle Renovation mortgage enables you as the borrower to buy a house with a mortgage or get a limited cash-out refinance mortgage and receive funds to cover the costs of repairs, remodeling, renovations, or energy improvements to the property.
There are no required improvements or restrictions on the types of repairs allowed or a minimum dollar amount for the repairs. Repairs or improvements, however, must be permanently affixed to the real property and add value to the property.
You can find a loan that works for your budget and your property with our free eBook, "Mortgage Loan Options" at the button below.
*ask a mortgage consultant for cost details on loans without mortgage insurance