With a whole bunch of bank owned properties on the market and the lenders very eager to sell them, I wanted to share a few thoughts and ideas with my friends. First of all, there is a great opportunity to find a nice house at a good price in today’s market. I remember in the last “crash” in the 1980’s, most of the properties were junk properties in bad locations. In this economy, there are nice homes in every location and price range. Yes, they need some work, but after repairs they will be great.
With regards to inspections, I do recommend you do full inspections. Think about it, the home was just foreclosed upon. If the previous owner was in financial trouble, there is a good chance they did not keep up to date on repairs, maintenance, annual service etc. How about that septic tank? How about the heating system? Most lender will not complete any repairs to the property and will only sell the property “as-is”. When buying the property you still have the right to do full home inspections on the property. After an unsatisfactory inspection, you will have the right to back out of the contract or proceed with the sale as-is. If your home inspections reveal something you did not expect, you can still ask for the seller to pay for these costs either in a price reduction or in seller paid closing costs. I have found that once a property is under contract, the lender is much more flexible with the buyer since they do not want to start over. The price you end up paying might be quite a bit less than the one you initially agree to.
Mold, lead paint and other health hazards are money in the bank if you are willing to have the property fixed yourself. Banks HATE the liability and will discount these properties for much less than the cost to fix (editorial here… NOT so smart on the banks behalf) these items. Therefore, I recommend if you find lead or mold you go back to the bank for a STEEP discount. Of course, you will want to have a professional in that area provide you with a quote so you can negotiate from strength and knowledge.
Pre-approvals are necessary and some lenders like Wells Fargo and Countrywide want you to get pre-approved through thirow own company. Not sure about that logic, since they were the ones who wrote the previous "bad loan", but if the ban requires it, you need to contact one of their local loan originators and get this done. If the lender does not require their own company to provide a pre-approval, then you are welcome to get a pre-approval from a lender of your choice. If you would like a referral for someone, feel free to email me. If you are paying “cash”, you will need to show a bank (or investment account) statement that shows the necessary funds to close. When providing the statement, I recommend crossing out the account number, so the information does not fall into the wrong hands
Another thing that is different with bank owned is their use of “Special Addendums”. Hey, we are talking about banks here…lol, so what would a transaction with a bank be without a little extra paperwork? ….lol Actually, they have a good reason for doing so. Since different areas of the country have difference real estale customs, the addendums allow the bank to make their sales contracts more uniform throughout the country. While they can be daunting (some are 20 pages), most of the items are common sense. Special attention needs to be paid to the section which outline who pays the closing costs. For example, in New Hampshire, the transfer tax (1.5% of sales price) is split evenly between buyer and seller. Many of the bank’s addendums state that the buyer pays the ENTIRE transfer tax. This means if the sale is for $200,000, this would be an additional $1,500 more in costs the buyer will be responsible for. Not a big deal, so long as you know this upfront and factor it in. The most important advice is to have a real estate attorney review the addendum with you so that you know what you are signing.
If you are willing to do some of the work (or pay someone to do it) you can end up with a lot of equity. If you are tight on cash, I recommend an FHA 203K rehab loan which will allow you to roll the repairs into the mortgage. This week, I did 3 appraisals on homes that are being bought from the bank. They were in Derry, Manchester and Tilton, New Hampshire. All 3 properties need less than 10K in repairs, but will be worth 40K more than what they will pay for the property once the repairs are done. If you have questions regarding FHA 203K loans just email me.
Good luck and remember, a bank will never be insulted with you offer. To them it is strictly business and not emotional. Given that…..Start low!!!!
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