Buying an REO (Real Estate Owned) or foreclosure property can be an opportunity or a bad experience. If you are considering the purchase of an REO you should be aware of several aspects of how they work. The bank usually list the property with an agent that specializes in listing REOs. They are given the specifications of the listing conditions and are usually dictated to by the bank.
No one thing can be generalized about and this as all other things are not always the case. Some agents build a good relationship with the bank and can manage to operate within a range of allowance and judgment in helping the bank get the property sold. Some agent are, however not that fortunate and are bound by the conditions the bank dictates. Most buyers believe that there will be room in the price.
If the listing agent has priced it correctly, there will not be much room for negotiation. If you are an all cash buyer, then that changes somewhat. The buyer will not receive any disclosures regarding the condition of the property and the bank normally will not pay for any repairs and that includes Section 1.
Once your offer is submitted, you are normally given a counter offer that takes away most of your rights in the State of California Residential Purchase Agreement.
The California Residential Purchase Agreement is a very good document that has evolved over many years to fairly protect the buyer and the seller in a transaction to sell real estate.
Because the banks have at their disposal the legal means to construct these counter offers, they often times take away many of the built in safeguards for the Buyer. Another thing to be careful about is whether the bank will allow you to use a local title company so that you can accurately predict what your closing costs will be. They will sometimes identify a specific title company out of the area and if they do….be adamant about what your closing costs will be. The costs can be different by several thousand dollars.
Use a good Realtor and have them help you determine if the REO is going to be a good buy. Sometimes, after all the repairs have been made, you may have been better off looking for a regular resale home. Good bargains are out there in this category, as well.
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Here are some tips and information to help you prepare to meet with a Mortgage professional and establish a relationship for determining what you can afford and what your goals will be. I have a number of references for mortgage consultation and I recommend that you speak with several professionals to determine who you feel comfortable with and want to work with.
1. What will a lender look at when I apply for a mortgage?
Lenders consider many factors in evaluating your loan application, but they usually focus on four areas:
Income and debt. How much money you make and what other bills you have to pay helps the lender determine whether you can afford to make mortgage payments.
Assets. The lender needs to make sure you have enough money to cover the costs of buying a home.
Credit. Whether you’ve met other financial obligations helps the lender predict whether you will repay your mortgage.
Property. The home you want to buy has to be worth enough to act as collateral for the mortgage.
2. What does it mean to get pre-approved?
Getting pre-approved means you receive a loan commitment from your mortgage company before you have found a home, based on a review of your credit and finances. Having your credit pre-approved shows sellers that you’re a qualified buyer and helps you establish a clear price range. The process is the same as a typical mortgage application, except that your application doesn’t include property information.
3. What if I’ve had credit problems?
Your credit history is only one factor in qualifying for a loan, and having made some late payments doesn’t have to keep you from buying a home. Someone who has consistently made payments on time in the past may have more financing options than someone who has not, but that doesn’t mean a mortgage is off-limits if you’ve had credit problems. In fact, we may be able to suggest a variety of mortgage options to help people with less-than-perfect credit become homeowners and leave credit challenges behind.
4. What is the minimum down payment I can make on a home?
There is no minimum down payment required for buying a home, in general. Many first-time buyers believe they must be able to put down as much as 20% of a home’s purchase price in cash. That may have been true in the past, but many of the mortgage options available to today’s home-buyers require little or no down payment. With housing prices as high as they are, homeownership would be impossible for many people if not for these low-down-payment options. We may be able to suggest a number of loan programs that can help you buy a home with little or no cash.
5. Will I have to pay for Private Mortgage Insurance?
Private Mortgage Insurance (PMI) provides your lender with a way to recoup its investment if you are unable to repay your loan. PMI is usually required when the mortgage amount is higher than 80% of the home’s value. That means that if you buy a home with a down payment of less than 20%, you will probably have to pay for PMI. One common way of bypassing PMI without making any down payment at all is to use an 80/20 program, which combines a first mortgage with home equity financing.
6. What closing costs will I have to pay?
Closing costs vary based on a number of factors – including the lender, mortgage type, purchase contract, and location – but they usually include the following:
Lender fees. Your mortgage company may charge for expenses related to making the loan, including an appraisal fee, a credit report fee, origination points, and discount points.
Third party fees. Charges for services not provided by your lender often include the settlement fee, title insurance, and attorney’s fees.
Prepaid items. Certain mortgage costs must be paid to your lender in advance. The most common of these are pre-paid interest, hazard insurance, and deposits to set up an escrow account.
7. Should I pay discount points?
Discount points are prepaid interest, which you can pay to your lender at closing in exchange for a lower interest rate on your mortgage. Paying discount points, each of which is equal to 1% of the loan amount, is often called “buying down” your rate.
So does paying points make sense for you? The answer depends primarily on how long you plan to stay in your home. First, find out how much lower your monthly payments will be if you pay points. Then, calculate how long it will take for those monthly savings to add up to the cost of the points. If it would take five years to break even and you’re planning to live in your home for 10, paying discount points may be a smart move.
8. Should I choose a fixed-rate or adjustable-rate loan?
Most mortgage loans have either a fixed interest rate or an adjustable interest rate. With a fixed-rate mortgage, the interest rate never changes and your payments remain stable throughout the life of your loan. With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals – usually once every year – based on market indicators. For most ARM options, rate adjustments begin after an initial period – usually between three months and ten years – during which the rate is fixed.
A fixed rate is usually best if you plan to stay in your home for the long term and are buying at a time when rates are relatively low. You may get the most value from an ARM if you plan to move before the end of the fixed-rate period, or if you’re buying at a time when rates are relatively high.
9. Should I lock my rate?
Locking your interest rate means your lender guarantees the rate on your loan even if market rates change before closing. Most lenders will allow you to lock your rate for 30 to 60 days, with the option to extend the rate-lock period for a fee.
So how do you know whether to lock your interest rate? It depends on whether you expect rates to rise or fall before you close on your home. No one knows for sure which direction rates will go at a given time, so it’s difficult to make a reliable prediction. It helps to keep track of announcements from the Federal Reserve Board, whose monetary policies have an effect on mortgage rates, and to talk to you financial advisor about what may happen in the near term.
10. What will my mortgage payments include?
For most borrowers, each monthly mortgage payment goes toward the following:
Principal, which is the total outstanding balance of the loan
Interest, which is the cost of borrowing money
Taxes, which are levied on the property by the local government
Insurance, which protects the owner and the lender from losses caused by fire and natural hazards
I am Jeanean Gendron, your Redding and Shasta County Specialist. I can be reached at 530 276-7417. I answer my phone.
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First Time Buyers have a new incentive to help towards owning a home. We currently have very attractive conditions that should help new buyers enter the market and achieve their goal of owning their first home. There are local Down Payment Assistance Programs and new Loan Programs designed to help you own your first home.
The market current provides and supports opportunity for you:
Historically Low Interest Rates
Real Estate is a Reliable Investment ($10,000 dollar investment in Stock Market in a normal market typically nets 12% ROI over 10 years, $10,000 dollar investment in the Stock Market in a bull market nets a 25% ROI over 10 years, and a $10,000 investment in a home in a normal market nets a 100% ROI over a 10 year period. Real estate is a more reliable investment than stocks. Source: NAR
It’s a Buyer’s Market–Plenty of Supply and Little Demand
The Buy Smart Time–typically a good time to buy a home is when the market is recovering.
Rates are back where they were at historically lows to make mortgage payments affordable.
There is a wide selection of houses which is good news for buyers when they have good home to choose from.
Homeowners in it for the long term nearly always come out ahead when building wealth.
It is a good time to take advantage of the strong local economy.
Home sales have slowed giving buyers the advantage.
Additionally, the Government is offering a $7,500 tax credit for First Time Home Buyers!
Who is eligible? The $7,500 tax credit is available for first time home buyers only. The law defines a first time home buyer as a buyer who has not owned a home during the past three years. All U.S. citizens who file taxes are eligible to participate in the program.
What Type of Homes Qualify? All homes within the U.S., whether single-family, town homes or condos will qualify. There are conditions. The home must be used as a primary residence, and the buyer has not owned a home in the prior three years. The tax credit includes newly constructed home.
If you are thinking of buying your first home, now may be a very good time to learn about your options. Visit our website for dates for First Time Home Buying Seminars or call me to register for the seminars or for details on how you can begin getting started in this process. The time is good and there is a deadline (July 1, 2009 for this tax incentive)….so call today and let’s get started.
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