One of the least known secrets about buying foreclosures for owner occupants is the 203k loan provided by the FHA. The FHA or Federal Housing Administration is the body that insures mortgages for the federal government. As such they have more flexibility and more interest in making homes safe and occupied in order to stabilize communities that may otherwise have homes that could be vacant and eventually become tear downs. The 203k mortgage offered by the FHA for homes that fall under the requirements of the FHA which means most homes in America. 203k is the designation given to a repair mortgage that allows home owners regardless of the condition of the property to finance repairs into the mortgage. These repairs could be limited to just updating or could be for full rehabs of existing homes. The lowest amount that can be asked for is $5000 but it can go as high as the home will appraise for. Some conditions do apply as far as what can be financed into the mortgage. Improvements such as adding a pool or tennis court will not be approved but other items that are reflected in the value of the home such as a second story or cosmetics can be easily added to the mortgage amount.
The 203k loan may be slightly more expensive regarding rates than a traditional FHA loan but this can be overcome by refinancing out of the 203k once the repairs are complete. This flexibility is incredibly valuable when shopping for a home as knowing about the 203k can expand the possibilities when looking at a home that needs repairs to bring it up to the standard that the home buyer wants. A 203k specialist must be engaged in order to assemble all the necessary paper work and provide it to the loan officer but the cost of this is far outweighed by the amount of options that are opened to the educated buyer regarding 203k mortgages and how most homes regardless of condition can be purchased and the entire home can be rehabbed to the taste of the new owner.
HUD foreclosures and VA Foreclosures are some of the best homes to buy when price is part of the equation. As with most Americans, price is always a concern. If not buying the same house for less, why not buy more house for the same dollar invested? When looking for a good deal it is hard to do better than the VA or HUD foreclosures market. The simple truth is that there are just more VA and HUD homes on the market, as they represent such a large number of mortgages that are generated each year. This translates into more foreclosures just by the magnitude of difference between all others comparing to the two largest.
The two largest also being government owned and operated means that they have less time to wait to make money back on the home. The FHA is especially known for selling HUD homes for less than the average sales price in a given area. FHA foreclosures represent a fraction of HUD but they are still a significant number of homes and both should be considered.
VA (Veterans Administration) and HUD (Housing and Urban Development) have different and unique opportunities for the buyer. Both are often forgiven for the local taxes normally associated with the purchase of a home (this is on a county by county basis). Be sure to ask the local title company or escrow company to look into it for you before closing as this is often missed due to their are not used to dealing with the 2 to 3 percent of the market that VA and HUD foreclosures represent.
Foreclosure Listings Increasing
As the market settled after the mortgage meltdown foreclosure listings also settled and fewer homes were on the market with a placard reading “Bank Foreclosure” in big red lettering. This was a good thing for the entire real estate market. Having an abundance of foreclosures brings the entire market down and it makes it harder for home owners, who would like to move, to get the appropriate price for their home as a similar home down the same street was sold for substantially less and the appraiser is using the foreclosure as a comparable sale.
This is just one of the problems when there are too many foreclosure listings in any area. Another issue is the television set that sits in everyone’s living room harping about the price of homes based on the number of foreclosures and this constant barrage of negative information makes most people sit on the sidelines waiting for the market to either implode completely or to correct itself. Meanwhile while they wait, others are buying foreclosure listings and making great investments.
Whatever the reason, a market can only handle so many foreclosure listings at any given time. The more foreclosures, the lower the market gets and this is a lesson the banks that were foreclosing and selling off realized too late. The market and their investments would have been better off if there had not been a rush to divest themselves of the toxic assets made more toxic by their own actions.