He Who Has the Gold Makes the Rules!

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stacks of goldForeclosures can be a great buy, but understanding the mortgage requirements on foreclosed properties is important.

It’s estimated that up to 1/3 of all real estate sales today involve foreclosed property.  You can purchase foreclosures at incredible discounts. But, if you’re not paying all cash, you need to understand mortgage lending guidelines for foreclosed properties.

Most loan programs require the home be 100% complete and in “lendable condition”. Often times, foreclosed properties are offered for sale “as is” but they need minor to major repairs!

Most home buyers today are not paying all cash. So in order for a buyer who is seeking a mortgage to buy a foreclosure here are some key things to remember:

1. The Mortgage Lender is not a party to the sales contract. Just because the buyer and seller agree in the sales contract to “as is” property condition, does not mean the lender will accept the condition of the house as collateral for the loan in it’s “as is” state.

2. What the buyer and seller may consider to be “cosmetic” may be of deeper concern to the lender and be considered structural.

3. In most cases any repairs must be completed prior to closing to meet lender guidelines.

4. There are certain types of mortgages, FHA 203 B and FHA 203 K, which allow for repairs and completion of the home. These loan programs are available for owner occupying buyers only and can take a little extra time to process and close.

5. Buyers using a mortgage to buy a foreclosure may need to make sure they select a home that the seller is willing to consider repairs and or will accept a sales contract that includes FHA financing.

I hope this helps you understand the process better if you’re getting ready to buy. Taking all of this into consideration, which is better – a normal resale or a foreclosure?

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6 Responses to “He Who Has the Gold Makes the Rules!”

  1. Sharon Darby/Ops Mgr. Says:

    Buyers interested in a foreclosure also need to be aware that they will be working with a bank or organization representing the bank rather than a “real person” or individual as the seller.

    Therefore, a foreclosure seller may not be as flexible or reasonable as an individual selling his/her own home when negotiating contracts, requesting extensions, or asking that repairs need to done. It’s not their house…it just one of many.

    Patience is definitely a virtue when buying a foreclosure!

  2. Dan Pfeiffer Says:

    “Taking all of this into consideration, which is better – a normal resale or a foreclosure?”
    I think it depends on the type of buyer and his/her expectations for the property. I know of one buyer who recently purchased a foreclosure in California that needed extensive repairs but not to the point where the property was unlivable. The family moved in and the father, who is experienced in renovation, began upgrading the home while his wife worked. The repair process will actually be an upgrade value-add that will certainly improve the home’s market value. This situation worked because the buyer was willing to put in the hard work and the family was able to live off the spouse’s income. As a DIY project they also saved $$$ in terms of contract labor.

    • Jennie Nerud Says:

      Just remember to check with the loan officer first because some of the loan types do not allow DIY projects. The FHA 203K requires a certified contractor to not only do a repair estimate but actually complete the repairs. In a case like this, only that contractor is allowed to complete the repairs and turn in the completed work invoice per the FHA 203K guidelines. Other loans will allow DIY projects…so just ensure that everyone is educated on the loan type the buyer is qualified for so there are no issues with what is and what is not allowed.

  3. James Welch Says:

    Soon after I got into the businesss world many moons ago, I learned the real Golden Rule “He who has the gold makes the rules” 🙂 Wow is it true today more than ever!

  4. Arthur Harris Says:

    If the buyer of a foreclosure property is not paying cash, make sure that he is aware of what type of loan his lending institution will grant him and how it will work with the foreclosure being purchased.

  5. Tesfa Zere Says:

    This is a very informative article Judy. I look forward to reading more such helpful topics in the near future.

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