Clear Title
There is a distinct difference between buying a home in pre-foreclosure and buying home that has already been foreclosed and seized by the bank. Make sure that the property is not attached to existing debt that the current owner has acquired. i.e judgements liens etc. I recommend researching the title, and public record before making an offer on all pre-foreclosures. A title company can assist you with this.
Fair Weather Pricing
Whether you are looking to live in the property, use it as a rental (investment property) or simply sell it, there are a few things that you need to consider:
- The bid you offer should reflect today’s market value minus at least 25%, not that of what you could get in a different market.
- If you decide to sell this property for more than you paid for it, most banks require you as seller to have owned the property for at least 90 days. (there are of course exceptions to this rule for more information please email me @ katrina@renaissanceloans.com)
- While you never want to side-step the seller, (sometimes they can actually be heavy arsenal for you when negotiating with the banks), most of your negotiations will be directly with the bank. Sometimes the banks are willing to except as low as fifty cents on the dollar and depending on the market and location much much less!
Location Location Location
Where you purchase is as important, as how much you will have paid for it. Not every discounted house out there is a good deal especially if it’s in a declining neighborhood.
If you decide to purchase in an area with a high concentration of foreclosure, make sure the house could remain profitable. Acquisition price is key. You will need to do your homework, on the area that you are looking to buy in otherwise, you could find yourself upside down if you have financed this project.
How Much?
One reason people are upside down in their financing is because the value was over inflated. I would recommend that you obtain two appraisals (in certain instances it is now a requirement by Lenders and FHA) from two different companies and always go by value of the lesser value minus 10%.
Secure Your Financing First
When making an offer to a bank, “time of the essence” is almost always issued. (Possibly called something else in your neck of the woods) What that means is that if you don’t go ahead with the purchase of the property, of if your funding is delayed it could cost you, either your deposit or a daily per diem for everyday you don’t close.
It is best that you are pre-approved BEFORE making an offer. By the time your offer is accepted by the bank, your lender should have already been given, all the needed paperwork to get your loan approved. Infact the last steps should be property inspections, appraisals, final title searches anything pertaining to the house and not to you.
It is also key that you remain credit worthy while you are seeking financing. Don’t make any new purchases, change jobs, stop paying bills etc.
C R E A M (Cash Rules Everything Around Me)
Cash is King. Is there reason really to elaborate further? Two weeks ago I made an offer on a house, I showed the seller that I was pre-approved, my offer was $4,000 less than the asking price. They accepted an offer 20k less than mine. The reason why? His offered cash.
Cash to a seller, says that the buyer can close quickly in 20 days or less. On the flip side, in terms of money, I offered them more and closer to their asking price, however what financing says to the seller is appraisals, inspections, contingencies, extensions, seller concessions, delays, etc, in some way costing the borrow time and money. Not every deal would have gone like that however there are a good majority that will.
Just know financing a property provides a lot of tax breaks and incentives.
Know your area
If this is a home you plan to live you research the neighborhood, find out how the schools measure up, crime rate, etc Knowledge is power.
Control Your Emotions
It’s only a deal if you get it at the right price. Fall in love with your spouse, love your children or even the shoes you are currently wearing, but absolutely never fall deep in love with a house where you end up in a bidding war and paying too much. I am a firm believer that if your first offer is accepted than you probably paid too much, so negotiate but don’t lose head, or deplete your bank account in the process.
KaTrina Veney is a Mortgage Advisor, freelance writer and major contributor to articles written for Lower The Rates Now.
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