Homes in danger of foreclosure or that have already been listed for sale based on the recent homeowner’s default are known as distressed properties. Distressed properties result from a homeowner getting behind on mortgage payments or a tax payment leading the lender or debt collector to begin proceeding to sell the home and collect the unsettled debt. Buying a distressed property can take anywhere from a few weeks up to a year.
However, simply understanding potential pitfalls of purchasing distressed properties and working with an agent who has a thorough knowledge of this market can get you a your dream home at a rock-bottom price potentially building equity on the spot.
Karen Arbutine & Associates with RE/MAX have extensive knowledge and experience in the buying and selling process of distressed homes. They can guide you through the process and help you locate and purchase just the right home.
Buying a distressed property means that you will be dealing with a highly motivated seller, such as a bank or seller in financial trouble. Buying a foreclosure mean that you will most likely be buying from a bank, while buying a short sale home most likely means that you are buying from the homeowner who wants to get out of a mortgage they can no longer afford.
Fortunately, these types of sales can be much easier to avoid offense. For example, making an offer that is lower than the asking price shouldn’t offend anyone, even though it may not be accepted.
It is the lenders’ priority to sell these homes and remove them from the liability side of their balance sheets. It is not uncommon for foreclosed properties to be purchased for far less than what they would have gone for five years ago. However, time is of the essence in the real estate world. Recently, bidding wars are taking place over moderately priced homes located in desired neighborhoods. Karen Arbutine & Associates can help you to come up with a reasonable strategy for making an offer.
If you're looking at short sales, understand that you are more likely to get a better deal on foreclosures. However there are certain advantages to purchasing short sale homes. One major advantage would be that the homeowners are so motivated to sell their homes that they keep them well maintained and in move in condition.
Unfortunately, if you expect to end up with a home for next to nothing, you will most likely be disappointed. More and more buyers are catching on and entering the market, including buyers looking for a place to live as well as investors. Higher prices are inevitable when more competition exists.
Be prepared for your short sale or foreclosure transaction process to take longer than for traditional transactions. It's not always clear which lender actually owns a mortgage loan, and it may take time to straighten it all out, especially if there's a second mortgage involved.
Some foreclosed properties are also in poor condition. Many have sat vacant for a long period of time with little or no maintenance. The previous owners are likely to have damaged the property or sold off fixtures knowing that they were departing.
It's crucial to have the home professionally inspected before you make an offer or put down earnest money. The inspector will assess the soundness of the structure and may discover issues that would be very costly to repair. Banks generally sell foreclosed homes “as-is,” meaning they won't take any responsibility for repairs. Even in a short sale, they are not inclined to make any such allowances because they are already losing money on the transaction. Hiring an appraiser to tell you what the house is worth may be a good idea in these cases.
Your best chance of beating out multiple buyers is becoming pre-approved for your loan and having all of your financing in order. Another way to speed up the process is to make sure that your purchase isn’t a contingency, such as needing to sell your current property before purchasing the new one.
To guide you through the process - from obtaining a loan or identifying a home to negotiating with the sellers (whether homeowners or banks), to closing - contact Karen Arbutine & Associates today.
For a first-time homebuyer, a federally insured FHA (Federal Housing Administration) loan may be a good option. The FHA has a program to help you restore a poorly maintained home that allows you to get a single loan that combines the mortgage with the repair costs. The loan you receive is based on the expected value of the property once repairs are made.
FHA loans only require a 3.5 percent down payment, as opposed to 20 percent with conventional loans, and the down payment can come from anyone such as an employer, family member or charitable organization. FHA loans even have lower closing costs than customary mortgages.
The federal government insures these loans so you will get a competitive interest rate and lenders may be willing to make it easier to qualify. For those with less-than-perfect credit, it's easier to obtain an FHA loan than other loans.
If you are interested in purchasing distressed properties or short sales, please feel free to begin your search here or contact Karen Arbutine & Associates today at 888.727.7778