Realty Insider Blog

While home sellers curse the occurrence of foreclosures in their neighborhoods, home buyers have slowly realized the upside to the increasing number of cheap homes on the market. Regular home sellers are usually limited by the equity in their homes when setting the sales price - banks have no such limitation. Banks can, and will, reduce the price until the home sells – the sales price of a home 3 years ago is pretty much irrelevant to the bank.

While investors have been snatching up foreclosures for the last couple of years, regular homeowners and first time homebuyers have remained sitting on the fence. Reasons for the hesitation range from the notion that prices will fall even further to difficulty in obtaining financing, and lastly, unfamiliarity with the process in general.

I often get excited calls from first time homebuyers asking to see short sales or foreclosure listings they have seen online at amazing prices. Let me comment quickly on short sales: they are often a waste of time. Most of the time they don’t work out, and if they do it is usually after months of back and forth and missed deadlines. Your time is usually much better spent pursuing foreclosures. If you *love* a specific house that is a short-sale, you may want to give it a try. Odds are that it will be relisted as a foreclosure in a few months though.

Back to foreclosures… What most potential purchasers don’t realize is that a foreclosure is cheaper for a reason. They are generally all As-Is - that means truly as-is, as in no termite repairs, mold repairs, home inspection repairs and no guarantee that plumbing, electricity or HVAC will be working on the day of settlement. 

Some lenders, large ones in particular like Countrywide, will now usually allow for a 10 day inspection period where you can bring in all your inspectors and submit the results to the lender. Generally they will only agree to lender required repairs.

Complicating things further is that the utilities often are off, and in many cases may remain off during home inspections or appraisals. Some banks also charge the homebuyer to re-winterize the property after the inspection or if the contract falls through.

You can also do the inspections before you submit the offer – and many investors do. However, buyers that are not investors usually don’t want to spend $350 on inspections on a house they may or may not get (as someone else can submit an offer while they do the inspections).

As a first time homebuyer you may be able to get a home you couldn’t otherwise afford. As long as you are aware of the risks and can put up with the hurry up and wait that usually accompanies the purchase process you could get a home for a steal!

Many homebuyers use FHA loans these days - you can purchase foreclosed properties with an FHA loan. You are typically restricted to the properties that are in the better condition as the FHA appraisers(so does non-FHA appraisers) have specific guidelines to follow in regards to the condition.

There are many areas in Northern Virginia where you can get great deals on foreclosures. If you do your research you will be able to get prices 50% off 2005 prices or more. Rents have remained pretty constant, so you can sometimes break even with 20% down if you pick the right property. Millionaires will be made over the next years by people that realize the potential and have the capital to mitigate the risks.

If you are looking to buy a foreclosure for investment or as a home, please give me a call!