| You find a foreclosed home in your area. | | | | years of tax returns, credit and rental histories, and you |
| What next? | | | | will need at least two years' experience in the same |
| There is a sign on the property. Should you call the | | | | line of work. |
| listing office? Pricing on a foreclosure/REO/ | | | | Usually Realtors are hooked up with a couple of trusty |
| bank-owned property needs to be right. | | | | loan officers who they use. It's a good idea to work |
| At this stage, you need to find a local Realtor who | | | | with your Realtor's loan officer. |
| knows the market. The Realtor will show you | | | | I was driving in Salinas and I saw a large banner on a |
| comparable sales to justify your asking price. | | | | building saying "100% Financing, State of Income, No |
| Never get represented by a seller's agent. They are | | | | Down Payment, Available, Come Apply!" In today's |
| getting paid by the seller, so they will work for their | | | | market, none of these products are available, and it will |
| best interests, not yours! | | | | be that way for quite a while. |
| Be aware: These properties are SOLD at a discount, | | | | When you are ready to buy an REO property, you will |
| usually 50% to 100% below market price, depending on | | | | need to work with a local realtor who knows his or her |
| the home's condition, location and market in your area. | | | | market. DO NOT USE the seller's agent; they are |
| If these types of sales are predominant in your market, | | | | getting paid by the seller and their main interest is to |
| I would expect a big discount price. Most of these | | | | best represent them. If it is a cash sale, you will need |
| homes are priced with all comparable foreclosures. | | | | to provide a verification of funding. If you are using |
| It seems that most lenders/investors who are selling | | | | financing, now is not the time to shop for a loan. |
| these homes understand the importance of getting | | | | DON'T get yourself into any of these dumb state of |
| them into move-in condition. | | | | income loans, or low down payments for investors. |
| The more people that qualify to buy these homes, the | | | | They don't exist any more. With FHA, you can get a |
| higher chance you have to sell them. I have seen a lot | | | | down payment as low as 3.5%. We do not have two |
| of homes with mold, all kinds of fixes needed, and I | | | | loans anymore to avoid the mortgage insurance. They |
| can already see some issues concerning their | | | | don't exist anymore. End of story. |
| appraisal. | | | | The sale of an REO property is AS IS. You will have a |
| The role of the appraiser is to get pictures of the | | | | very limited disclosure, usually useless, just to protect |
| house and suggest all needed repairs. I can see this | | | | the seller. You will need to do all your investigations, |
| possibly turning into an issue in their loan conditions. | | | | and if getting a loan, you want to be sure that the |
| Whatever the appraiser writes, the underwriter sees. | | | | property will be approved. |
| If an REO property doesn't satisfy FHA conditions or | | | | When buying as an investment, BE OPEN MINDED. |
| cannot qualify for a loan, you are taking at least an | | | | You have to look at the return on your |
| 80% chance of selling it. | | | | money--nobody cares if it is not in the best |
| Warning: Some of these homes have been painted to | | | | neighborhood, with a white picket fence. I like to have |
| cover mold and hide all kind of defects that will not be | | | | at least 12% to 15% in return. You will need to check |
| disclosed anywhere. I have seen some house-flipping | | | | with the rental market...and most of the time, let a |
| where the sellers did a very good job at hiding | | | | property management company do the renting for |
| everything, especially mold. | | | | you. You will only have so many days to close the |
| Going back to the issue of price: A technique that | | | | sale, and any extension might be at a per day cost, so |
| some agents use is to list these homes at very low | | | | be sure to work with a Realtor who is familiar with |
| prices, looking for multiple offers, and cash offers if | | | | these type of sales. |
| possible. For a normal foreclosure listed at $250,000, | | | | This won't be one of the last years with a large |
| an agent will list it at $174,000, ending up with 7 or 8 | | | | inventory of foreclosures and REO properties. We will |
| offers, or even more. | | | | still have them coming in the market for a while. |
| These homes will sell for more than their asking price. | | | | Higher-end homes start to come into our market, and |
| If you have a cash offer, you might be lucky to get it | | | | of course not everybody can afford them. But with |
| at $195,000 and if you are planning financing, you might | | | | the high-end home, you are going to get the same kind |
| need to come up with $215,000 or more if the loan is | | | | of bargain...and they are also good investments. |
| FHA. | | | | Take any money that is sitting in your bank account at |
| If you have a cash offer, you will need to provide a | | | | 1% to 2% and turn it into at least 12% to 15% in return. |
| funding verification. If you are a first-time home buyer | | | | These REO properties are SOLD below market price, |
| or an investor who will need financing, now is not the | | | | 100% and more... Just pick the right one. |
| time to shop for a loan. | | | | I know that it is so hard to make these kind of |
| At this stage, you should be all set, meaning you are | | | | investment decisions, and I hear it all the time: What if? |
| working with a loan officer who has pre-approved you. | | | | What if? I never thought would be possible to see a |
| You should know what kind of a loan you are getting, | | | | real estate drop as we did, but now it happened, and |
| including the monthly payment and PITI. FHA is the | | | | we have all the facts to make the move and get |
| easiest type of loan to get with a down payment of | | | | wealthy, but what if? |
| only 3.5%. For any loan, your loan officer will need two | | | | |