Tips for buying Distressed Properties
Many of the homes for sale today - as many as half in some markets - fall under the category of “distressed properties.”These are homes that have either gone through foreclosure or are being marketed as “short sales.” In a short sale, the homeowner can’t afford to maintain the mortgage, but the lender - rather than foreclosing - agrees to the sale of the property for less than the balance of the loan.
These types of sales have different dynamics than traditional sales - with more paperwork, often a longer transaction process and, in some cases, more frustration. For these reasons, many buyers shy away from foreclosures or short sales.
However, if you understand the potential pitfalls of purchasing a distressed property - and work with an agent who has a thorough knowledge of this market - you can get a great home at a great price.
Thousands of RE/MAX agents have been specially trained in working with foreclosures or short sales through the Certified Distressed Property Expert class or a similar course. They can guide you through the process and help you locate and purchase just the right home for you.
This is an outstanding time to buy a home - distressed property or not. With historically low interest rates, and a glut of homes on the market in most areas, there are bargains to be found. And the U.S. tax credit of up to $8,000 for first-time buyers - good for a home purchased before Dec. 1, 2009 - makes purchasing a home even more attractive.
Is a distressed property for you? Here are pros and cons of buying one.
Advantages of Buying a Distressed Property
First, you’ll be dealing with a highly motivated seller - either a bank in the case of a foreclosure, or in a short sale, sellers who are in financial trouble and very interested in getting out of a mortgage they can no longer afford.
These types of sales take much of the emotion out of the process. You won’t be insulting anybody, for instance, if you make an offer that’s lower than the asking price. (That’s not to say that the low offer will necessarily be accepted, of course.)
Lenders are extremely interested in getting these homes sold and off the liability side of their balance sheets. Many foreclosed properties can be purchased for only a percentage of what they would have commanded five years ago. (This situation is beginning to change, though; bidding wars are breaking out on some foreclosed properties these days, especially those that are moderately priced. Your RE/MAX agent will know what’s going on in this area and will be able to help you arrive at a reasonable strategy for making an offer.)
If you’re looking at a short sale, you’re not likely to get quite as good a deal as on a foreclosure. But there are definite advantages to purchasing one of these homes. For one thing, since the homeowners want to get the home sold quickly, they are likely to keep it well-maintained and in good move-in condition.
Disadvantages of Purchasing a Distressed Property
If you’re looking for a “steal,” you’re probably not going to find it. The market is heating up, with more and more buyers jumping into the market. If you’re purchasing a home to live in, you’ll often be competing not only against buyers similar to yourself, but against investors. More competition inevitably leads to higher prices.
The transaction process for short sales or foreclosures often takes longer than for traditional transactions. It’s sometimes not clear which lending institution actually owns a mortgage loan, and it can take time to get it all sorted out - especially if there’s a second mortgage involved, which is often the case.
Some foreclosed properties are also in rough condition. Many have sat idle for a long time with minimal or no maintenance. The departing owners may have sold off fixtures, or damaged the property.
Interested in searching for foreclosures in your area? Access the Foreclosed Properties database here on remax.com.
Purchasing Tips
It’s critical to have the home professionally inspected before you make an offer or put down earnest money. The inspector will assess the structure’s soundness and may uncover problems that would be very costly to repair. Banks usually sell foreclosed homes as-is, meaning they won’t make any allowances for repair. And even in a short sale, they likely won’t make any such allowances, because they’re already losing money on the transaction.
You should have your financing in order before pursuing a foreclosure purchase. Pre-approved buyers have the best chance of getting the property in case of multiple offers. Also, banks generally aren’t interested in contingencies (for instance, needing to sell your current home before purchasing another).
You might also consider hiring an appraiser who’ll tell you what the house is worth. A RE/MAX agent can also perform a Comparative Market Analysis.
To guide you through the process - from obtaining a loan to identifying a home, to negotiating with the sellers (whether homeowners or banks), to closing - contact a RE/MAX agent.
Mortgage and foreclosure terms defined.
Distressed Properties and FHA Loans
If you’re a first-time homebuyer, a federally insured FHA (Federal Housing Administration) loan might be a good option. The FHA has a program to help you repair a fixer-upper. You can get one loan that combines the mortgage with the repair costs. The amount of the loan is based on the projected value of the property once repairs are made.
FHA loans only require a 3.5 percent down payment - compared to 20 percent with conventional loans - and the down payment can come from an employer, family member or charitable organization. FHA loans also have lower closing costs than conventional mortgages.
Since the federal government insures these loans, you’ll get a competitive interest rate and lenders may be willing to give you terms that make it easier to qualify for a loan. If you have less-than-perfect credit, it’s easier to obtain an FHA loan than a conventional mortgage.
Find out more about FHA loans.
About HUD Homes
FHA-insured homes that go into foreclosure are acquired by the U.S. Department of Housing and Urban Development (HUD). HUD homes are offered for sale through Internet sites managed by management companies under contract to HUD.
Real estate agents who register with HUD can submit offers on behalf of their clients. HUD pays the agent’s commission.
HUD homes are sold as-is, without any warranty. HUD doesn’t make repairs nor pay to correct any problems. Again, that makes it critical to have homes inspected before making an offer.
In designated revitalization areas, law enforcement officers, K-12 teachers, firefighters and emergency medical technicians can purchase a home at 50 percent off the listing price. (They must commit to live in the property for three years.) Additionally, evacuees from hurricanes Katrina, Rita or Wilma can purchase a HUD home at a discount.
Tips to Prevent Foreclosure
Tips to Prevent Foreclosure
Be proactive. Contact your loan servicer immediately.
You can find the contact information on your monthly mortgage bill or coupon book.
*Lenders can work out plans to allow you to stay in your home.
*Ask about foreclosure alternatives.
*Be prepared to disclose detailed financial information.
*Provide requested information in timely manner.
*Be ready to change your spending habits and create a budget.
*Open mail and respond to calls from your loan servicer promptly. Failure to respond in a timely manner can result in more foreclosure actions and additional cost.
Consider refinancing your loan.
*Refinancing to a fixed-rate, fully amortized lower-cost loan may help.
*The FHA offers a program that helps homeowners with good credit refinance. It’s called FHA Secure.
Talk to a housing counselor. HUD approves trained counselors to work with not‐for-profits focused on preventing foreclosure. Search for HUD counselors.
Get in touch with your local government agencies. Your city, state or county may offer programs for people having trouble making their mortgage payments.
Notify your other creditors. You may be able to lower interest rates on your credit cards or consolidate some of your other loans. You can put the savings toward your mortgage.
Create a budget. You may find areas you can save and put the money toward keeping your home.
Re‐read your mortgage agreement. Understanding the document is critical.
Talk to a lawyer if you think you may have been a victim of predatory lending. Your local university may host a legal clinic. There also may be fair-lending counseling agencies in your area.
Beware of anyone who says you don’t need a real estate professional or title company when selling your home.
Do not sign over the deed to your property to any organization or person if you are not working directly with your lender to get your debt forgiven.
Short Sale Qualifications
Must HaveQualifications for a Short Sale
1. Financial Hardship
2. Monthly Shortfall
3. Insolvency
While the misconceptions of what qualifies a seller for a short sale are many, the reality is actually very simple. Following is an explanation of the three major items that banks will be looking for to consider a seller for a short sale. While there will be much more information required, this is an excellent place to start. A seller who does not meet all three of these
thresholds will not qualify.
1. Financial Hardship
First and foremost a lender will want to see that you are experiencing a ‘financial hardship’. A financial hardship is a verifiable issue that has caused your to miss payments or have financial difficulties. Financial hardships can be issues such as:
* Mortgage Payment Adjustment
* Job Loss
* Too Much Debt
* Business Failure
A simple definition for ‘financial hardship’ is:
A material change in-between the day the mortgage was signed and today that has affected the borrower’s ability to pay.
2. Monthly Shortfall
Almost every lender will want to see that a potential short sale client cannot afford to pay their mortgage. The way that this is demonstrated is on a financial worksheet that is essentially a monthly profit and loss statement. While this may sound difficult in reality determining whether you have a monthly shortfall or not is actually relatively easy.
The equation is:
Total Monthly Income - Total Monthly Expense = Monthly Shortfall
If you do not have a monthly short fall but will have one soon due to a payment increase or pending layoff, etc. then you still can qualify for a short sale as long as this issue is verifiable.
3.Insolvency
In order to qualify for a short sale, you cannot have the means to pay down his mortgage. This means that the mortgage company wants to see that you owe more than you have in cash (know as being insolvent). You do not however have to be completely broke-this is a common misconception, the lender will want to see that over time the borrower will not be able to pay their obligation.
Certified Distressed Property Expert
What is a CDPE?
A Certified Distressed Property Expert® (CDPE) is a real estate professional with specific understanding of the complex issues confronting the real estate industry. Through comprehensive training and experience, CDPEs are able to provide solutions for homeowners facing hardships in today’s market.
The prospect of foreclosure can be financially and emotionally devastating, and often homeowners proceed without guidance of any kind. The developers of the CDPE Designation believe that in almost all cases, the best course of action for a homeowner in distress is to speak with a well-informed, licensed real estate professional. They have the tools needed to help homeowners find the best solution for their situation.
While enduring financial difficulties is challenging for any family, the process of finding a qualified real estate professional should not be. Selecting an agent with the CDPE Designation ensures you are dealing with a professional trained to address your specific needs. For more information, contact a CDPE in your area.
CDPE’s don’t merely assist in selling properties, they serve and help save their clients in need.
Please feel free to call regarding your home.
9 Ways to Avoid Foreclosure in Lake Tahoe
FORECLOSURE
What It Really Means & How to Avoid It
9 Ways to Avoid Foreclosure:
1. REINSTATEMENT: Bring the loan current
2. FOREBEARANCE: Temporary repayment plan
3. REFINANCE: New loan with reduction in monthly payments
4. LOAN MODIFICATION: Modify original loan terms
5. SELL THE PROPERTY: Use equity to payoff or pay difference
6. RENT THE PROPERTY: Must make loan current
7. SHORT SALE: Negotiate with bank to accept sale under loan amount
8. DEED IN LIEU OF FORECLOSURE: “friendly foreclosure”
9. BANKRUPTCY: Will stall foreclosure but not prevent it
Call today and allow our team of experts to help!
