Why Now Is First-Timers Chance of a Lifetime

With low home prices and an abundance of foreclosed properties for sale, first-time home buyers might do well to find out what is available in their areas.

First-timers are in a unique position to purchase foreclosures, for two reasons.

The first is that few if any lenders will accept a contract on a foreclosure from a borrower who has another home to sell.

The second reason is that first-timers can most likely stay where they are while going through the drawn-out process of purchasing a foreclosed property.  Some borrowers might wait weeks to even hear if an offer they have placed on a property has been accepted.

First Steps for First-Timers

To start the process, as a borrower, you should get yourself prequalified, so you know what you can afford.  You should then find yourself a good real estate agent who knows the ins and outs of foreclosures, preferably one who does a lot of these transactions.

Having a real estate attorney review the documents is also a very good idea.

Conventional Financing

To obtain traditional financing (conventional or FHA) the property must be habitable – which means it has functioning water, electricity, heat, etc. – but may be missing things such as a stove and a dishwasher.  These items are considered separate from the property itself.

FHA 203(k) Financing

For properties that need a bit more work or are sold as-is, look into the FHA 203(k) program.

This two-in-one loan covers the cost of the property and some of the repairs that it might need.  The loan amount is based on the anticipated appraised value once the repairs are made.|

This program covers one- to four-unit buildings and is for borrowers who intend to live at the property, meaning that investors would be excluded from the program.

June 2009

What is the Difference between Foreclosures and Short Sales?

With all the talk about foreclosures these days, a basic overview of some of the terminology might be helpful.

When a property is in foreclosure, it means that the lender has started legal proceedings to take back the property from the borrower.

A borrower is considered to be in default when he or she misses even one payment, but lenders typically start proceedings after three missed payments.  Depending on the state where the property is located, the court system may be involved.

The period of time from when the borrower misses the first payment to when the lender starts the foreclosure proceedings is called the pre-foreclosure period. A number of things can happen at this point. The borrower and the lender can sit down and come up with some type of loan modification agreement, by which the terms of the loan can be altered, at least for a certain period of time, to allow the borrower to get into a better financial position.

If the borrower can find someone who wants to, and is able to, buy the property, he or she can sell.  If the amount the person wants to pay is less than the borrower owes and the lender will take that amount, it is called a short sale. Once the foreclosure proceedings have started, however, the lender will be the only one that is able to sell the property.

If the borrower and lender agree that the borrower will turn the property back over to the lender, then walk away – without going through the foreclosure process, a deed in lieu of foreclosure takes place.

June 2009