Is Buying a Foreclosure a Good Deal?
In recent years, foreclosed properties have received lots of attention. We still have many of them coming to market. Eight million of home owners are currently under water. Sadly, some will not be able recover and their homes eventually will become REOs.
Buyer’s often think that they can buy a bank-owned, run-down house, put in some work and end up with an inexpensive home to live in. In theory, it works. Many late night TV infomercials reinforce that idea. However, the truth is a little different. Unless, you have cash, and enough of it, that type of a project may not be for you.
Let’s talk about the cost of acquisition. If you don’t have enough cash or if you want to leverage your money, mortgage is a viable option. Question is, which bank is willing to lend on something that may appraise out, but is given a C6 rating? What? Yes, houses are now rated by appraisers on a scale C1 to C6, where C6 requires extensive amount of work. Oftentimes, foreclosures do. If you are trying to go through FHA or with minimal down payment, your loan will be rejected. I hear it all the time: “But it appraised out!” Well, your agent should have explained it. Appraisal is much more complicated than just assigning a dollar value. In those circumstances, the only option are rehab loans, like FHA 203-K. The cost of that type of loan is higher, qualifying is very different, the process is more involved and it takes longer. So, let’s be realistic. Just because you have enough monthly income, to get a mortgage, does not mean you can buy any house in your price range. The house has to meet the criteria established by your lender within the limitations of your financing type.