• Louis Baca

Buying a Foreclosure in 2018

Dear Reader, 

* We recognize that reading an article doesn't make you an expert nor does it replace the decades of experience we have as professionally licensed loan officers. Before you get out there to start looking at homes to buy, we recommend that you make sure your financing is in place to avoid costly mistakes.

There has been a steady decline in foreclosures (or Real Estate Owned properties/REOs) since 2013. In 2017, there were 677,000 foreclosures nationwide which pale in comparison to the 2,900,000 in 2010. The reduction in foreclosures is a result of tighter underwriting standards, job gains, and rising home prices that have increased homeowner equity-stakes. 

Foreclosures For First-Time Home Buyers

Many of the first-time buyers that approach me with financing their starter home are looking to buy foreclosures. Afterall, home affordability is at all-time lows as home prices continue to increase so why not go after distressed properties? 

Well, it depends on the condition of the property and if you are getting a "deal." Just because the bank owns the property doesn't mean they are selling it for less than market value. Finding a foreclosure for lower-than-market-value may be due to the property requiring repairs sometimes MAJOR repairs like the foundation or roof.

Don't let repairs get you down!

We have loan options designed to SAVE you money that will allow you to finance the repairs WITH your purchase. These rehabilitation loans give you the benefit of not having to obtain expensive interim financing to do these repairs after you've purchased the home. 

Some products, like the FHA 203(k) loan we offer don't allow for cosmetic rehabilitation; however, we have other loan products will let you do cosmetic upgrades such as adding a pool or that outdoor kitchen you've wanted. 

HUD who?

Besides Real Estate Owned properties (REOs), Housing and Urban Development own foreclosures as a result of a foreclosure action from an FHA-insured mortgage. HUD foreclosures are treated a bit differently as the property will already have an appraisal. 

*BUYER BEWARE* Most foreclosure buyers are willing to offer above the sales price to win the bid, but since the value has already been determined, they will have to come out of pocket at closing with the difference. 

If the property needs minor repairs before it can close, a repair escrow account is set up. A repair escrow account will allocate part of the funds to go towards the required repairs. In some cases, where the property includes a pool, there would be other things you should know, but we don't want to bore you with the details. Just remember you can call our office anytime to get more information should you find yourself in this position with a property you're interested in. 

A Foreclosure Isn't Necessarily a Starter Home

Homeownership comes with a LOT more responsibility than you are probably used to when compared to renting. For starters, preventative maintenance is critical to avoid costly repairs before they come due. Buying a 10-year-old house with the original A/C unit means you should expect to spend $$$ within the first couple years after you purchase. You can offset some of these expenses by buying a home warranty.

Something to think about is how the prior owner took care of the house you are about to buy. I've seen many foreclosures with the lighting gone, doorknobs removed and the whole house practically gutted due to the prior owner trying to get "one-up" on the bank. 

If you haven't seen the movie Money Pit, starring Tom Hanks and Shelley Long, I highly recommend it! It's not an educational movie, but you'll get some good laughs if anything. 

So, is it GOOD or BAD to buy a foreclosure your first time around? 

Before this question is answerable, you need to know your reason is to buy a house in the first place. Equity is the only thing that makes your home yours. Equity IS the asset, and it is determined by how much you can sell the house for minus your mortgage balance. Equity is built by either: a) the market value is increasing by buyers willing to pay MORE for what you paid LESS for or b) your loan balance decreases. Ideally, both! 

There are only three reasons I've been able to observe during the 13 years I've spent helping Americans achieve their dreams of homeownership. 

The Buyer:

1.  That is keeping up with the Joneses. Qualifying for as much as they can afford, putting the least amount of money toward the down payment, and stretching the loan term as long as they can severely limit the equity that makes the house theirs. If they don't sell to make a profit, they might as well have just rented. 

2.  That never intend on selling. If this is your forever home, you're not looking to profit off it. Maybe you will give it in an inheritance or to charity. In either case, your intention is NOT to sell it.

3.  That is purchasing real estate to make a profit. Few companies offer pensions nowadays. Many retirement accounts tied to the stock market are becoming increasingly volatile as it continues to reach new heights. All of these point towards creating your cash flow when it comes time to retire. Knowing when to buy and sell is the all-important tool, and that comes from watching the markets and making moves BEFORE everyone else does. 

The Future of Foreclosures

Unemployment is at its lowest levels in a long time; home prices are at their highest, home affordability is at its lowest, inventory is still tight, all the while, interest rates on mortgages are on the rise! These factors are creating the perfect storm as property taxes continue to match rising home values pushing fixed income or set budget households to sell their home or give the house back to the bank. 

There is a rise in investor loans. As more investors saturate the market and as more apartment units pop up, the Seller's Market scale will be tipped toward becoming a Buyer's/Renter's Market. Once expansion turns into hyper-supply, increasing vacant homes will lead to falling equity as buyers have the upper hand in negotiations. 

Our Mortgage Team is available 24/7 to meet your needs. Call 214-395-7630 or apply while you're on our website! The application takes less time than you just spent reading this article!

Louis Baca

Geneva Financial LLC Producing Branch Manager/Loan Officer


(800)704-0852 Fax      NMLS 196378 - NMLS 42056

318 W FM 544   BLDG D STE 4 MURPHY, TX 75094

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