I receive many calls and meet with many eager buyers who would like to buy foreclosures or bank owned properties. In most cases, these properties are in bad shape. If you get lucky, you can sometimes find a property in somewhat good condition.
First time home buyers want do get a super deal. The problem that many buyers run into is, they are not always aware of all the obstacles with these type of properties.
One obstacle is getting past the required financing repairs. Most first time home buyers use FHA financing. FHA has strict rules on conditions of the property. With a regular FHA program, ALL conditions must be fixed prior to closing. So who is going to fix the property if it needs say $10,000 to 15,000 in repairs. Most bank properties are sold “AS IS” so that means it is up to the buyer to make the repairs. Ok so if the buyer has FHA financing then the buyer is going to have to make the repairs to the house prior to closing.
So, as a buyer, do you want to be sinking several thousand into a home that you don’t own, knowing that ownership is not secured until closing?? Some banks will not even permit repairs on the property prior to closing.
What ends up happening is in many cases is cash buyers come in with no mortgage requirements wanting no inspections and rehab it to resell or rent.
The good news is, if you are up for the challenge, I have been made aware of some lenders out there that offer what is called a FHA/203K loan. These have been around for years but it was hard to find a lender that would write up a loan like this, especially in recent years.
It is a neat process and one of my buyers is currently running on this program. The FHA appraiser goes in and finds out the condition of the property and reports what needs to be done. Then after or at the same time the FHA approved contractor goes in and estimates the cost of the needed repairs.
Next the bank loans the buyer the repair money (above the price of the house) as part of their mortgage amount. At closing an escrow account is set up to hold the repair money. At that time, the approved/certified FHA contractor (not Uncle Joe) is paid part of the funds for the repairs and then when completed and approved, they are paid the balance.
So if you are looking at these type of properties and are going with FHA financing, you may want to find a lender that will approve your for an FHA/203K loan and don’t expect to move in right after closing depending on the nature of the repairs.
I think this program is exciting for the right buyer who is up for the challenge.