Finding a Home to Call Your Own
Now that you’ve been pre-approved and found a good local buyers agent, it’s time for you to find a home to purchase. At this point, your buyers agent should be sending you available property listing based on your search criteria.
When you find something that you like, you’ll go inspect the property with your agent and if all looks good, you’ll make an offer to purchase. We’ll cover how to make your offer in another blog post but right now we’re going to cover the different types of sales scenarios you may run into.
These sales scenarios include buying a regular property, buying foreclosed or bank owned properties, and buying a home via short sale. All these scenarios can provide problems that make them hard to finance and we’re going to discuss foreclosures and short sales in more detail.
Buying a regular property that isn’t bank owned or a short sale is the path of least resistance. However, they usually sell for a higher price and there can still be problems that affect the purchase. These usually come down to appraisal issues and we’ll cover the most common of those issues shortly.
Buying a Foreclosed Property
Buying a foreclosed property can be a great investment. But don’t get too excited as there are some serious issues to keep in mind when considering a foreclosure. We’re going to cover most of those issues here but if you happen to have additional questions feel free to call us at (248) 674-6450 anytime as we’d be glad to help.
If you don’t already know, a foreclosure is when a lender repossesses a home from the existing owner due to that owner falling behind on the mortgage payments and not being able to cure the default within the court appointed time period. Once a home is foreclosed upon, the ownership changes from the defaulted owner to the lender or bank holding the mortgage. This is where the terms “Bank Owned” and “Real Estate Owned” come from.
One of the main issues with buying a foreclosed home is that the previous owner doesn’t always leave on a happy note. In fact, sometimes they are down right destructive and leave the property needing expensive repairs. These repairs can range from holes in the walls to missing the entire kitchen. I’ve even witnessed a foreclosure sale where the previous owner flushed cement down the toilets.
Depending on your knowledge of construction or building, you may be encouraged to put an offer in on a distressed foreclosure. The problem is it’s next to impossible to get traditional mortgage financing on a home that requires repairs prior to occupancy. It’s even harder to get financing if you intend to do those repairs yourself.
A traditional mortgage lender will require the home you are purchasing is fully functional and has a value to support the purchase price. If these two requirements aren’t met, the purchase will be cancelled and you won’t be buying this home.
In order to determine if these requirements will be met, the lender will require the buyer to purchase a property appraisal. This appraisal will represent the value of the property as well as document any issues the property has that may interest the lender.
Any issues reported in the appraisal will have to be handled by the seller prior to the lender approving the loan. This becomes a huge problem when dealing with a “Bank Owned” home because the bank has already taken a financial loss when they foreclosed. This makes them unwilling to put any more money into the property even if it prevents the homes sale.
This puts the buyer in a real tough spot since they have to pay almost $500 for the appraisal. So make sure you know what you’re getting into if you choose to pursue a distressed foreclosure. In fact, prior to submitting your offer, you should contact us at (248) 674-6450 so we can game plan for potential financing issues.
With that being said, there happen to be a couple of really cool mortgage programs available that allow you to finance the purchase of a home as well as the repairs necessary to make it livable. These programs include FHA’s 203K loan and Fannie Mae’s Homepath Renovation loan. We’ll cover everything you need to know about these two loan programs in the “Loan Programs” section.
Purchasing a Home Via Short Sale
Beyond appraisal issues and foreclosed properties, you may also have the opportunity to buy a home via short sale. A short sale is simply someone attempting to sell their home for less than they owe on it. This will require the sellers lenders approval because they will have to suffer the financial loss of accepting less than what is owed. It can often take a lender several months to approve a short sale so it requires the buyerâ€™s patience.
Fortunately, the process for requesting and completing a short sale has improved a lot over the past couple years. However, there is never a guarantee that the lender will approve the short sale so it becomes a bit of a gamble.
This can put you in a tough spot because while you’re waiting for the sellerâ€™s lender to approve your offer, you’re no longer looking at houses. And since the lenders approval is not guaranteed, you may be missing out on other houses that don’t require a short sale.
With that being said, you can still get a great deal on a short sale and most listing agents list short sales at prices they believe the lender will approve. My main goal is for you to understand what you may be in store for if you pursue a short sale.
Common Appraisal Issues
It’s important to recognize not all foreclosures are distressed and not all regular sales are issue free. So, what I want to do now is cover some of the issues an appraisal can cause when purchasing a home.
Issue 1 – Value is Lower Than The Purchase Price
If for some reason, your appraisal comes in less than the purchase price, you will be able to negotiate with the seller to lower the sales price. If the seller is unwilling to lower the price, you can walk away from the deal or make up the difference with your own money.
I would never suggest a buyer pays more than the appraised value for a home but sometimes people really want a particular home and are willing to make a poor financial decision to get what they want.
Issue 2 – Water damage
Any time the appraiser documents water damage on a home the buyer needs to be prepared to pay for additional inspections. The buyer also needs to be aware that lenders hate water damage and depending on what the appraiser writes within the appraisal, it could kill the deal.
Make sure you are completely aware of any water damage or mold issues the property may have prior to making an offer to purchase.
Issue 3 – Holes in The Wall
A hole in the wall can be a big issue depending on how big and how many. Even though a hole in the drywall is easily repaired, lenders hate to see them reported within an appraisal. Make sure to notate any wall holes that may be in a house you want to offer on.
Issue 4 – Missing Stuff
If any of the following are missing it will cause a financing issue:
– Kitchen or bathroom cabinets
– Cabinet parts like doors or drawers
– Lighting Fixtures
– Wall outlets – no exposed wiring
– Sinks, bathtubs, or toilets
– Doors or closet doors
– Floor molding
– Water heater
– Deck boards
– Deck railing
Issue 5 – Broken Stuff
If any of the following are broken or non functional it will cause financing issues:
– Water heater
– Foundation walls
– Deck boards
– Deck railing
Issue 6 – Noticeable repairs
If any of the following items require repairs financing will be a problem
To learn more about the mortgage process and other pitfalls to avoid check out the other blog posts below. I hope you find this information useful and remember you can always call us if you have any questions or if youâ€™re ready to get pre-approved and get the process started.