Buy Foreclosures Like a Pro #2 - Pre-Qualify and Search Smartly
When you are ready to buy the first step should be a call to your preferred bank or mortgage professional. Based on the information and documents you provide, the loan officer will provide you with a pre-qualification (or pre-approval) letter that you can present with your offer. This letter will provide the loan type, down payment amount, and loan amount. Knowing the type of loan you will use is important in narrowing down the home search. Some homes will not qualify for certain loans due to condition, property type, HOA and others.
Unless you have at least 20% to put down on a Conventional Mortgage, your options may be limited. FHA, THDA, Rural Development and other similar loans require that the home is in average condition or better. Most foreclosures are in below average condition or have minor repairs that would be required by the lender. Many banks will not allow repairs to be made to the home prior to closing. This dilemma has caused many contracts to terminate which is a waste of time for both the seller and the buyer. If you have a Low or No Down Payment Loan, it is best to focus your search on foreclosures that are in average or better condition. Your Realtor can help you sort through all of the foreclosures and find the homes that best meet your needs.
If you have experience working with contractors and your dream home is in below average condition, you may have one option. The FHA 203k Loan is a Low Down payment, rehab loan that allows the buyer to escrow money for repairs to be completed after the closing. The buyer would get bids from approved contractors before the closing to determine the amount of money to set aside in escrow. Rehab loans can take longer to close than the average FHA loan, so plan to allow 45 - 60 days to close a FHA 203k loan in this area. Homepath is another loan down payment, rehab loan that is available on some Fannie Mae Foreclosures.
Not every Realtor, Loan Officer or Contractor is experienced with foreclosures. If you need a referral to some great professionals, please let me now.