Foreclosures are properties which have been taken back by a bank or an insurer after an owner stops making payments. They can be a great way to get a “good deal” in many cases, but there are certain nuances to this type of transaction that you should be on the lookout for.
Most of these properties are sold “as is”. What that means is that the bank who owns the property is not willing to make any repairs to the property as a condition of the sale – period. Keep in mind that many of these properties could have been in disrepair at the time of foreclosure, and have been sitting vacant for many months.
If you are obtaining financing for your purchase, the new lender will have the property appraised, and could and likely will require certain things to be repaired PRIOR to settlement.* Even if you, as the buyer, are willing to make the repairs yourself, you cannot make repairs to a property you do not own yet. This means you would be required to change your loan to a “Renovation loan”, or walk away from the transaction. Renovation loans can be a great way to purchase a distressed property, but the terms and costs can be different than with standard conventional or FHA loan. Often you will not know the cost or extent of the repairs needed until a full complete inspection is done by a certified inspector.
*Below is a list of items that could be flagged. This lists is not all inclusive, but are good examples:
Additionally, some banks or insurers are exempt from transfer taxes. Entities which are exempt include Fannie Mae, Freddie Mac, and VA. If the property is owned by one of these entities, this means all the transfer taxes get charged to the Buyer. This could be the difference of thousands of dollars in additional closing costs. You will want to make sure you are aware of this up front, and have accounted for the additional money that will be needed at settlement.
Holly Hart – Loan Officer, NMLS ID 219868
For more info contact 410-984-8692 or hhart@southerntrust.com
This is not a guarantee to extend consumer credit as defined by Section 1026.2 of Regulation Z. Programs, interest rates, terms and fees are subject to change without notice. All loans are subject to credit approval and property appraisal. First Home Mortgage Corporation NMLS ID #71603 (www.nmlsconsumeraccess.org). Holly Hart NMLS ID 219868
Most of these properties are sold “as is”. What that means is that the bank who owns the property is not willing to make any repairs to the property as a condition of the sale – period. Keep in mind that many of these properties could have been in disrepair at the time of foreclosure, and have been sitting vacant for many months.
If you are obtaining financing for your purchase, the new lender will have the property appraised, and could and likely will require certain things to be repaired PRIOR to settlement.* Even if you, as the buyer, are willing to make the repairs yourself, you cannot make repairs to a property you do not own yet. This means you would be required to change your loan to a “Renovation loan”, or walk away from the transaction. Renovation loans can be a great way to purchase a distressed property, but the terms and costs can be different than with standard conventional or FHA loan. Often you will not know the cost or extent of the repairs needed until a full complete inspection is done by a certified inspector.
*Below is a list of items that could be flagged. This lists is not all inclusive, but are good examples:
- Roof damage;
- Termite damage;
- Faulty plumbing/leaks/burst pipes;
- Mold;
- Missing appliances
Additionally, some banks or insurers are exempt from transfer taxes. Entities which are exempt include Fannie Mae, Freddie Mac, and VA. If the property is owned by one of these entities, this means all the transfer taxes get charged to the Buyer. This could be the difference of thousands of dollars in additional closing costs. You will want to make sure you are aware of this up front, and have accounted for the additional money that will be needed at settlement.
Holly Hart – Loan Officer, NMLS ID 219868
For more info contact 410-984-8692 or hhart@southerntrust.com
This is not a guarantee to extend consumer credit as defined by Section 1026.2 of Regulation Z. Programs, interest rates, terms and fees are subject to change without notice. All loans are subject to credit approval and property appraisal. First Home Mortgage Corporation NMLS ID #71603 (www.nmlsconsumeraccess.org). Holly Hart NMLS ID 219868
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