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It’s in all of theheadlines: foreclosed properties are at their highest levels in years. There are many, many homes available to the savvy buyer.
It is a sad fact for some, but it may be a great chance for others.
The first step to take is to contact a real estate agent specializing in REO, real estate owned properties. Lenders that are have foreclosed properties usually like to work with a select group of real estate specialists. These kinds of agents are even starting to hold tours of foreclosed homes, as a way for prospective buyers to view as many properties as possible in a short time.
It is not recommended that you buy a foreclosed home at auction, where you usually don’t have the opportunity to look at the home first. With an agent, you have the chance to walk through the house, ask questions, etc.
Many foreclosed houses have suffered damage, either light damage merely from being abandoned, or serious damage, perhaps even inflicted by disgruntled borrowers. If there is real damage to the home, you may consider asking a general contractor to look over the home and give you an estimate on how much it will cost to repair the damage.
To calculate the value of the home, use the same method you would with any home, that is, using the comparables in the area. This is what similar sized homes in the same neighborhood are selling for, or more realistically, have sold for in the last months. Make sure you look at the prices of homes that sold, since the list prices can be inflated. The concept is to compare the property to a house of about the same size that is in good condition. Now, you can deduct your costs of repairs from that price.
Start your initial bid as low as you can. There is no reason to bid the asking price, or you wouldn’t be shopping for a foreclosed home. The real estate agent can give you some indication of the range the seller will consider. A buyer in this market has a definite advantage with a seller who not only does not want to own the house but has many more just like it to unload.
Between the estimates and how much it will cost to repair, you will come to a fair value. You will be able to get a bargain, given the market you are working in.
Be ready to borrow enough to pay for the home and the required repairs. If you have a lot of money to put down, keep your deposit down and use some of the cash for the repairs of the property.
One type of loan that works well for foreclosures is a 203K loan, which not only will cover the purchase price but will also cover the costs of repairs.
It is always s good idea to contact a mortgage broker ahead of time and obtain a pre approval letter for your mortgage. For the maximum negotiating power, you have an advantage over other prospective buyers if you already have your mortgage in place.
Don’t settle for the first house you see or give up too easily if you don’t have success at first. The more qualified you are as a buyer, the easier it will be to get the dream home at a bargain price.
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This might be considered a non issue since we mostly feel that the time to apply for a home loan is when you are buying the home. This is usually true, but you can improve your chances of getting a mortgage by timing some crucial steps.
There is a good rationale for this. First we need to understand how credit ratings work. You may not be in a position to be concerned about your credit score, but once you start looking for a home loan, you will. Take steps now to improve your credit rating if you want to improve your chances of a mortgage.
If you have reached a position in your life where you have decided to buy a first home, or have outgrown a home and need to shop for a new one, putting off some decisions and changes may have a big impact on your credit score.
There are some important factors that will influence your credit rating. The credit rating is the judgment, expressed by a number, by a credit rating agency about how good a risk a borrower is. There are some factors that hold a lot of weight in this rating, such as how the borrower has paid his bills, his credit lines and the stability of his job.
If you can change some of these important factors, you can improve your score. Let’s discuss the most important factors that you can work on.
Regardless of whether you have been an on time bill payer in the past, you should become one now. This is not to say that your old history will not have an impact, but if a lender can see that your recent transactions reflect a history of on time payments, this will have a good influence.
If you are thinking about a mortgage, this will not be the time to be opening any other credit accounts. Lenders even consider inactive credit lines that are too large a danger, since you have the easy option of overexposing yourself to debt. Even though you are offered great deals such as 0% financing or store discounts with the opening of a new account account, resist the temptation because it may damage your credit rating.
Too many open credit card balances will also have a bad influence your credit worthiness, so now is the time to tighten your belt and stop purchasing and start paying off credit card debt.
Now is NOT the time to switch jobs, if you have any alternative in the matter. Job stability is a major component of your credit score, since it means you will continue to have a salary. With a short job history, your job is less safe, and a job loss would mean you could not pay your bills.
Retirement is another big change that can have an impact on your mortgage application.
Regardless of whether you have enough retirement funds, a lender prefers to see a salary before granting a mortgage. Refinance your home or apply for a home loan for your retirement home before retiring.
You may not be in a position to make such drastic adjustments to your life, but if you can take steps such as this, you will be in a better position to make sure it is a good time for a mortgage.
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Unlike fixed rate home loans which have fixed rates for fixed maturities, ARMs have changing rates for fixed terms. As interest rates began skyrocketing in the seventies, banks decide to protect themselves against this risk by setting interest rates more frequently.
When interest rates were steady for years at a time, traditional fixed rate mortgages worked; when interest rates became unstable, banks started protecting themselves with ARMs.
ARMs are for thirty years typically, with interest rates changing in the course of that term. Most homeowners don’t actually worry about the term of an ARM, but rather how frequently the rate “resets”. If you think you will own your home for a long time, you should try to get the longest fixed rate period you are able to.
Most of the time, the five year adjustment period is what works for most borrowers. When the interest is adjusted more often, the risk of spikes in the interest rate is higher. If you have an initial rate of 6% and then the rate increases to 8% and back down to 7% in the five year period, you have missed that middle spike in rates.
With an annually adjusted ARM, the homeowner would have had all of the increases in between. Luckily, many ARMs have a version of top interest rate cap as an element of the agreement.
One of the most critical factors in the ARM you decide upon is how long you plan on living in the house. If you will only live there a couple of years, the initial interest is the main concern. If you think you will be in a home for six or seven years, try to get a seven year adjustment. Normally you cannot get an adjustment period of over 7 years.
The interest rates on ARMs are tied to any number of interest rate based securities such as T-Bills and T-Notes, LIBOR (London Interbank Offered Rate) and others. Depending upon your interest rate outlook, each one has its advantages. Be aware that any ARM with a frequent adjustment period will affect your mortgage payment frequently.
This is not an ideal situation for many homeowners, who have to live on a fixed budget.
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The mortgage market is no longer simple. With all of the choices available, it is difficult for a home buyer to choose the best mortgage.
Understanding the types of choices you will have to have will make it a lot easier to get the best type of home loan for your situation.
The first decision you may encounter is between an FRM and an ARM. As the initials would tell you, an FRM is a mortgage with a fixed rate and an ARM is a home loan with an adjusting rate.
Even if you have chosen an FRM, you will have a mixture of choices in this kind of mortgage.
And the same applies to an ARM, with different adjustment periods, etc. There is practically no limit to the different types of ARM mortgages that are currently on offer by lenders.
Another decision facing a borrower is whether you want to opt for an interest only loan, although this choice is offered less and less nowadays.
The next decision a borrower has is whether to pay points to lower his loan rate. This is usually a situation that can be decided by how long you plan to live in the home.
A similar decision making process applies to the size of your down payment. Most people are limited in this decision, but for those with ample funds, they have to decide whether investing part or using it all for a down payment is the best choice.
Next you will be asked if you choose a mortgage with a prepayment clause. If you think you may want to pay the mortgage down early, this is a good choice.
What about a lock in rate? The problem with a lock in rate is that interest rates can go lower. You will have to pay the increased rate, even if better rates are prevalent in the market place. You may, for a fee, though, have an option to annul the rate agreement if the rates are lower at the time of closing. Borrowers who either feel rates are going up, or don’t want to be in the business of forecasting rates, should take the lock in option.
This many choices can make your head spin, but knowing the options before hand will save you a lot of money over time. Understanding what your lender is offering you will make a major difference in the loan you finally end up with.
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In today’s buyer’s housing market, one of the first decisions you have to make is whether it is really a good time to sell. A few years ago, so many were putting their homes on the market at ourtrageous prices just to take advantage of the upswing in the market and the potential profit they could make on their home. That is far from the case today, when sellers are losing money on their homes;so you should make sure you really need to sell now.
When you don’t have a choice, for example, if you have a new job, be ready to fight hard to get a good price for your house. If you have any decision making in the matter, delay the sale as much as you can. Housing prices have been rising and decreasing for decades, and though we may not see the heady days of the early 21st century, prices will once again stabilize and start rising.
If you have to sell, the first and most important decision is, are you going to sell it yourself or are you going to use a real estate agent? FSBO, for sale by owner, houses are becoming more and more typical as today’s high house prices make real estate commissions of 5 or 6% seem obscene. But remember that there is a lot of work to list, show and sell a home. If you are not going to be able to devote to the project a lot of time and attention, you may end up sitting on the house a great deal longer, which will cost you as much as the commission. Today’s tight market has also meant that real estate commissions have become much more realistic.
Your choice of agent is critical. Do a complete research and find the one who has been most successful over the past year in your neighborhood. Check to see which ones had properties closing in the shortest length of time.
Once you have chosen the realtor, cooperate carefully and closely with her. Be in touch often about the desires of buyers, and ask when your house will be shown. You will always be on her mind when a prospective buyer walks into her office. Make your house always available for viewing, or allow the agent to have a lock box. Especially in today’s glutted market, you don’t want to have a buyer pass over your home.
Treat this as the critical project it has become. Do all you can to make your home stand out in this market. Hire a handyman or home inspector to find any potential problems
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