I want to begin looking at foreclosed homes but I've heard they are difficult homes to purchase, which I don't understand as I would think the bank wants to sell them as quickly as possible. However I am a first time buyer and do not understand the "regular" buying process let alone the foreclosure purchase. What is the different between purchasing a home owned by the owner and purchasing a foreclosed sale?
There are a few differences between purchasing a foreclosed home versus a owner occupied home. First hire a Buyer's Agent who is Experienced in Foreclosures. This is going to be very important. In fact I have a home closing this week that almost did not. This particular client was dealing with a Realtor who had absolutely no experience with foreclosures and became so frustrated that he decided he was not going to show them anymore foreclosures after he had already submitted an offer on their behalf. Frustrated they thought they had lost the home. We have corrected the issues and they are settling on that very home this week! So again I cannot stress enough the importance of hiring an experienced Realtor who knows how to proceed with a foreclosed home.
The differences will not truly be noticeable by the purchaser. There are addendums that must be signed but that is also true of most relocations. They normally want a 30-45 day closing, however a 30 day closing is much more difficult at this time due to situations occurring with mortgage lenders. One of the differences is the fact that foreclosed homes are sold as-is, however I have had many banks give a credit to the buyer for repairs or even pay to have repairs taken care of. Another difference is that there is no Seller's Property Disclosure which gives you the history of the house from the home owner. That is exactly the reason why you should have a home inspection completed, however another difference is the house will be winterized, meaning the water will not be able to be tested as well as the heat due to the fact that many times the electric is not turned on. It is the buyer's responsibility to have the home de-winterized and then re-winterized and it is at the buyer's cost. However just recently I had a bank who agreed to do just that for the buyers! They also agreed to put a small amount of oil into the tank so that the heater could be checked! Another difference will be that normally there is no one representing the bank at the closing but often times the seller is not there anyway and this does not affect your closing process.
So the differences should not keep you from purchasing a foreclosed home. If you have an experienced Realtor they can easily move you through this type of home buying process and secure a great home for you. One other note I'd like to make is if you are purchasing a foreclosed home normally they are cash or conventional mortgages. However with a FHA203K you can purchase a home even if it needs complete rehab! This is a great way to purchase with little money down and receive the funds needed to make all repairs needed. The bank will send an appraiser to the home and that appraiser will determine what is required to be completed for FHA and the purchaser will provide a list to the mortgage lender of upgrades he or she would like to complete. A total costs for the repairs and updates is determined by a contractor that is approved by FHA. The appraiser then determines if the home will have the market value after all repairs are completed. For example if you purchase a home for $100,000 and want to do repairs/upgrades at a cost of $25,000, the appraiser will then determine if the home will have a market value of $125,000 once those repairs/upgrades are completed. The purchaser therefore is mortgaging the $125,000 minus the downpayment. This type of financing is time consuming and again you must be sure that your Realtor has experience in this type of financing. Good luck with your search.
How can I be sure that a property is going to appraise for the sales price if the bank does not do the appraisal until after an agreement of sale is in place? What if I pay too much for the home? Am I able to negate the agreement of sale if this occurs?
You are correct the mortgage lender will do an appraisal once an Agreement of Sale has been accepted. There are protections from the situation. You will want to be sure that you have an Appraisal Addendum. This addendum will state that the home needs to appraise for the sales price. It also states that the appraisal must take place within a certain time period. If the home does not appraise then you have a chance to re-negotiate the sales price with the seller and if you cannot negotiate then you can null and void the agreement of sale and receive your deposit back. Also if you are purchasing utilizing FHA the house must appraise and if it does not appraise, again you will receive your deposit back.
If the comparables in the area are very close to the home you are purchasing and the home is in the same condition or close as the others you should not have a problem with the appraisal. The appraisers at this point are able to look at sales within the past 90 days only. If they find no comparables in the past 90 days then they are able to look back further.
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