The Foreclosure Blues by Jon Hayes Hallmark Home Mortgage

Over the last months, I have had at least five different clients come to me and tell me they were going to by a Foreclosed Property.  All five clients had two things in common; First, They were all first time home buyers with limited disposable cash, and second, they all had unreasonable expectations.

So here are a couple of things to keep in mind when you consider buying a Foreclosed Property.

1.       Banks Are Smart-  A lot of people think they are going to buy the home for 40-50% of its value.  It ain’t gonna happen.  The bank has had an inspector and an appraiser out to the property.  They have a market analysis and know exactly what price they are going to sell it for.  And, depending on the scope of work needed to make the house habitable, they are going to list it at 70-80% of its value.  Several realtors have told me horror stories about clients that only want to put low-ball offers in on foreclosures, and 12 months into it they are still writing offers.  It’s not a lottery and it’s not free money.  The bank didn’t get to be a bank by giving anything away, ever.
2.       Garbage In Garbage out-  The house is going to need work and the bank is not going to do it for you.  So often when people have their home foreclosed on, they quit taking care of it.  When they move they take the light fixtures and switch plates and the appliances.  In several instances I have seen the furnace and carpeting ripped out too.  Not to mention vandals taking all of the copper piping (I’ve seen this 3 different times).  As the potential borrower, you will have to fix this prior to getting a loan (the bank will not), or you will have to get a construction loan to make the repairs.  Construction loans are a different beast.  They require a larger down payment, have tougher underwriting guide lines and are more expensive. Construction loans do not usually allow Sweat Equity either.
3.       Sweat Equity Kills The Passion-  Although the thought of buying a house and generating 20% equity in it instantly might be romantic, nothing will kill the passion in a new marriage like living in a construction zone.  I have seen this time and time again as both a lender and as a General Contractor (in my old life).  If it will take a professional crew 2 weeks to get the work done, it will take you 6 months, if you are diligent.  Face it, you are going to work all day (8-9 hours), then you still have to raise kids, run errands, make dinner, mow the grass, etc…  It is hard to find the time to be a construction worker too.  Living in that mess will create tension in a marriage.  I’m not Dr. Phil, I’ve just seen it happen a few times.
So, with all of that being said.  Let’s go look for a Foreclose Property!  There are bargains to be had.  But remember, those bargains come at a price.  Make sure your expectations are in line with reality.  At the least, I would not recommend a first time home buyer, newly married couple buy a foreclosed property.  Save that for your second home.
Jon Hayes
NMLS #: 130501
Hallmark Home Mortgage, NMLS#: 53441
317-430-315