The top 5 states with the highest number of foreclosures per capita are Indiana, Michigan, Wisconsin, Ohio and Maryland. What do these states have in common?
The easy answer is high taxation compared to the national average. High taxation keeps businesses from starting up or in some cases from staying in the state. In the most dramatic of cases a business can be closed because of taxation that is more designed to extract as much money as possible from the business rather than being designed to encourage the business to grow and stay in the state.
Low unemployment is a leading indicator of foreclosures. Low employment is not good even for the investor as once the foreclosure is purchased it will need to be sold or rented to someone that has a steady income. Be aware of the employment in the area that the home is located as it will impact the ability to sell or rent. This rule applies to Cities and Counties as well. This is not to say that there are not good opportunities in these states or any others. It is just part of the larger equation that needs to be added rather than ignored.
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.
