What every homebuyer should know about buying a fixer upper

Foreclosed

This week, I wanted to talk about Fixer Uppers.  I show a lot of distressed homes, and many that are not distressed, that need work.  Some may be just cosmetic and some may be structural.  What does it matter?  For investors that are buying homes to flip or to rent, it does not really matter much to them because it is all about paying cash and getting the best deal.  Most investors expect to do work and know what they are looking at – but what about the average first time homebuyer?  

If you are financing your home, repairs will be a big part in getting the home you want.  In most cases, distressed homes are “as is” with “no repairs”.  Depending on the extent of the work to be done, the home you choose may not be able to be financed by your lender.  In many cases, the home does not qualify for FHA or HUD standards and the “seller” will not fix anything, thereby preventing you from putting in an offer on some homes.  If you know that the home will require repairs for financing (your Realtor can tell you this information), you should have a contractor look at the home upfront and give you a quote and breakdown for work to be completed.  When writing up your offer, ask the seller to make those repairs so that you are able to obtain financing  If your offer is strong enough, the seller may consider making those repairs to sell the home.  Your other option is to consider a 203K Renovation loan that will allow you to finance repairs. In many cases, the seller may still refuse to do anything, but you never know until you ask.  This key is to do your homework and submit a strong offer based on current sales and renovation costs.

Here is another good article from Hands on Homebuyer about fixer uppers:

Is the fixer Upper worth Fixing?

Finding a foreclosed home to buy

Please be sure you have a good contractor you can call if you are looking at distressed properties.  You need to know what you are getting because there are no warranties and the bank holds no liability for homes that are damaged or have hidden defects.  It is “buyer beware” and you need to do all your due diligence before you make an offer.  You can get a great deal on a distressed property that may require minimal work – just be informed and do your homework.

Here is one of my archived articles on buying a foreclosed home:

A few things to consider before purchasing a distressed property

Fannie Mae offering 3.5% in closing costs to buyers until end of June 2011

Many of the distressed homes you will find on my weekly distressed property list are Fannie Mae Distressed Properties. That means that Fannie Mae guaranteed the loan originally, the home foreclosed and now they are selling it.  Many of the Fannie Mae properties qualify for the Home Path Finance program and offer special incentives for the buyer.  Until June 30, 2011, Fannie Mae is offering 3.5% in closing costs to home buyers that use the HomePath finance program.  Here is a link to the Fannie Mae site for additional information:

http://www.homepath.com/incentive/index.html

HomePath Mortgage allows a borrower to purchase a Fannie Mae-owned property with a low down payment, flexible mortgage terms, no lender-requested appraisal and no mortgage insurance. Expanded seller contributions to closing costs are allowed.

Benefits to You, the Borrower

  • Low down payment and flexible mortgage terms (fixed-rate, adjustable rate, or interest-only).
  • Down payment (at least 3 percent) can be funded by the borrower’s own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
  • No lender-requested appraisal.
  • No mortgage insurance; ask your lender for cost details on loans without mortgage insurance.
  • Expanded seller contributions for closing costs allowed.
  • Available for primary residences, second homes and investment properties.
  • Many condo project requirements are waived; ask your lender for details.
  • For more information, contact a HomePath Mortgage lender or click here for the Home Buyers Guide.

This is a great program with many benefits to the buyer but you must be under contract by May 15th at the latest if you are considering this program to give the lender enough time to close the loan.   You can also use the HomePath Renovation Loan for homes that need to be fixed up first to qualify for a loan.

  
HOW DO YOU KNOW IF IT QUALIFIES?  Most of the listing agents will put this in the remarks section of their listings, but not all of them.  Ask your buyer’s agent to search for homes that may qualify and they can give you a list.

 Click here to search Statesville NC Home for Sale and other Iredell County Distressed Listings.

Negotiating the deal! What to know BEFORE you place an offer.

Realtors_Care_Day

This article is an excerpt from my weekly buyer blast that I send every Friday.  I have been experimenting with other days of the week but you will receive it at least once per week.  I send out a List of area Foreclosed and Distressed Properties in the Statesville, Mooresville, Troutman areas of Iredell County.  I also include Charlotte and Catawba on occasion.  If you would like to receive my weekly article and Foreclosure listings, please SIGN UP on my website and I will add you to my list.  I will not call or bother you, just provide you with helpful, useful information.

Today I am out working in the community as a site captain for Realtors Care Day 2011.  Our local Realtor Organization will be working on over 20 homes from Statesville to Charlotte.  Over 600 Realtors will participate and help out our fellow residents that are unable to maintain their homes.  It is always a pleasure to see my fellow Realtors come together for such a good cause! 

You can keep up to date on happenings in Statesville by "liking" my Fan page on Facebook.  I try to post timely articles of local events, new listings, new businesses, market updates and much more. 

 

This week I would like to talk about the negotiation process.  Many first time home buyers are unsure of what happens when you finally find a home you like and want to make an offer.  It used to be a much easier process before the "foreclosure" and "short sale" era (as I call it).  Normally you would sit down with your buyers agent and look at area comps to find a good price to offer initially, decide on the amount of earnest money to deposit (this is your "good faith" money), set the proposed inspection and closing dates, decide if there are any other conditions you want to include, sign and present the offer to the seller along with your pre-qualification letter.

Here is a link to the basic process offered by REBAC (Real Estate Buyers Agent Council):
Negotiating Process for Buyers

Today, however, you need to know much more about presenting offers such as:

Is it a HUD house?  This process is completely different and involves submitting a bid online to HUD on their paperwork and adhering to a VERY strict timeline.  Your buyer’s agent will need to understand the different types of HUD home offerings, the required timelines and earnest money, any "escrow" amounts for repairs and type of finance programs. 

Is it owned by Fannie Mae or Freddie Mac?  These homes may offer specialized finance programs with other incentives and home warranties.  They will have their own bank addendums and instructions for submitting offers to them.  They prefer shorter closing times but are relatively easy to work with.

Is it a Short Sale?  These homes are much more difficult to work with.  The home has not foreclosed and the lender may agree to accept less than is owed on the home however, the process is painfully slow and may take 4-6 months to get an answer.  Please be sure you have an experienced agent before attempting one of these!  Your offer is submitted to the seller for acceptance first and then to the bank for approval, then the mortgage insurance company and then possibly Fannie Mae or Freddie Mac or HUD.  If there is a second mortgage on the home, it gets even more complicated.  Get an attorney upfront to do a title search and know what you are walking into.

Is it owned by another bank?  All banks will have their own addendums that will need to be signed after your offer has been accepted.  You need to be sure you read them thoroughly and know what you are signing.  It is a good idea to have your attorney read them over before finalizing them.
Here are some links from some of my past Blogs that offer additional information:

A few things to consider before purchasing a distressed property

03-10-2011 23:58:47 PM

I have been working with lots of buyers of foreclosed or distressed homes lately and wanted to give you some hints on how to make this type of purchase a little easier.  First, let’s talk about Short Sale Properties:  A … Continue reading →…»

How to Purchase a HUD home in North Carolina

02-10-2011 14:23:57 PM

How to Purchase a HUD home In recent months, there was a huge backlog of HUD homes that were held up for closing in NC and changes were made to try and streamline the entire process.  There are now three … Continue reading →…»

What is this new "Due Diligence" Fee in North Carolina and how does it affect me?

01-26-2011 17:16:00 PM

I know I will be explaining this question for a long time to come!  As of January 1st 2010 in North Carolina, we no longer have just the Earnest Money deposit option on the Offer to Purchase Sales agreement.  Our … Continue reading →…»