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3 Complications When Buying a Foreclosed Home

rawpixel-760063-unsplashBuying a foreclosed home can come with a unique set of challenges. We're not trying to scare you off from your decision to buy a foreclosure. However, we do want to prepare you for some of the issues you may face, the solutions available and the information needed to help you decide whether this purchase is worth it in the end. 


It’s Complicated – Seller Concessions

Because the seller in a foreclosure deal is a bank you may find yourself dealing with jargon and terms that seem nitpicky to the average buyer. For instance, an accepted practice in real estate deals is for the seller (a private seller) to cover “closing costs.” This often can include pre-paids like an escrow account. However, pre-paids are not technically called closing costs. So if your purchase agreement with the bank calls for concessions on closing costs, the bank can – and may – come back with bad news at the closing table and say it won’t pay for pre-paids. At the last minute, you may find yourself stuck with a large bill to pay. Renegotiating at the closing table could get sticky, but a trusted mortgage consultant might be able to get the bank to agree to the terms that include the pre-paids. Every situation is different of course, this is just one example.

Another financial issue that may arise is title policies. In a traditional home purchase deal, the seller pays for the owner’s title policy. Once that’s handled, the buyer takes care of the mortgage title policy. However, in a foreclosure deal the seller is the bank, and it often will not cover the owner’s policy.


Time Delays and Doing Business Remotely

Adding to the complicated process is the fact that a bank selling a property is often removed from the local community. Real estate-owned (REO) properties are often owned by a national bank headquartered in a major city in another state. The bank will not come to the closing table as a private seller would. Instead, the paperwork must be mailed to an office, looked over by committee and eventually signed & delivered. This all takes time, so REO deals often take longer than traditional deals.



Finally, repairs. We’ll cover this in more detail in the next section, “The House is Missing What?” but we need to mention repairs and repair escrows. Many foreclosures are in need of repair for various reasons. Banks selling REO properties won’t let buyers go in before closing the deal in order to fix what needs fixing. Most lenders financing the purchase won’t close on the loan until certain things get fixed. We’re at a standstill at this point. However, a specialty lender like AmeriFirst Home Mortgage has more flexibility, and can offer options like short-term repair escrows.


A short-term repair escrow allows you as the buyer to put money into an account in order to make repairs and renovations after the closing. You can then close the loan, and you have a short period of time (approximately 2 weeks or so) to get the work done for a re-inspection. This allows you to buy the home, close on the loan and get the repairs done in a relatively quick time period, rather than starting from scratch.


Want to know more about loan options? Download the free guide at the button below. We want to make sure you understand the process. An educated home buyer is a happy home buyer.

Loan Options Guide


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Tips for Paying Off Your Mortgage Faster

There are several ways to pay off your mortgage faster and save on interest payments. Even better, not all methods require spending a lot of extra money! Take a look at the list below: Make extra principal payments.  You can pay extra money toward your mortgage balance each month or make a larger, lump sum payment on your principal each year. This reduces the amount due on the mortgage as well as reducing the amount of interest that will accrue. Extra money can also be added to the principal payment from bonuses, gifts, savings and extra earnings. Just remember to make a note on the check for the money to go towards the principal! Make one extra mortgage payment per year. One of the easiest ways to make an extra payment each year is to pay half your mortgage payment every other week instead of paying the full amount once a month, otherwise known as “bi-weekly payments.” With these payments, an extra payment is made so that the total number of payments that one makes adds up to 13 payments in a year rather than the 12 that would have been made with monthly payments. This adds up to significant interest savings over the duration of a mortgage. You also want to make sure that if your lender accepts this kind of payment they will not charge you a prepayment penalty. Also verify that the bi-weekly payments are being applied to the principal amount and not the interest. Otherwise, you won't notice the savings. Reduce your balance with a lump-sum payment. Have you inherited money, earned a bonus or commission, or sold a large item? You could apply that amount to your mortgage’s principal balance. Another option is any time you have a month where you have that third paycheck, apply that to the principal on your mortgage. This will happen twice a year, adding an extra principal payment to your mortgage loan. While paying down a large debt is nice, it's not a requirement. Consider making sure you have enough to work toward other financial goals, such as an emergency fund, before paying more on your mortgage. However, there are many options you can explore that best fit your budget. You can learn more about buying your first home with our Get Mortgage Ready Guide below.


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