Foreclosures 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?