Start with a clear idea of what you can spend on a home — before you shop.
Understand the options for buying a foreclosed home.
Home buyers often think they want to buy a foreclosure. Unfortunately, as many full-service mortgage lenders can attest, many buyers jump in before truly understanding what the purchase of a distressed property entails in terms of additional costs, repairs paperwork and effort.
Foreclosure is one of the four types of distressed properties. You might possibly save money with any of the four, but the further along the process from original ownership to bank ownership, the more money you, the new buyer, might have to sink into repairs.
Before you decide to go the foreclosure route, become an informed consumer! Speak to a Realtor and a great mortgage lending company like Ark Mortgage. In addition, these tips can help:
1. Pre-foreclosure: In a pre-foreclosure, the owners are behind in their mortgage payments and are in danger of default. This is documented by a “lis pendens” notification, filed at the local clerk or record keeper’s office and available for public view. This doesn’t mean the property is necessarily available for purchase. Owners may still come up with the necessary funds or apply for a loan modification before deciding to sell the home to avoid potential foreclosure.
2. Short Sale: In a short sale, the property is typically no longer worth the amount the owners still owe on their mortgage. The owners attempt to sell the home for the highest amount a potential buyer offers, and then ask the bank to forgive the difference between the sale proceeds and the amount they still owe. In a short sale, you are negotiating with the bank, not the owners, and the process can take several months.
3. Foreclosure Auction: Also known as a sheriff’s sale or trustee sale, this is where the bank owns the property and publicly auction it off to the highest bidder. Evicted (and often bitter) former owners may have removed appliances, pipes, wiring, heating systems and more.
4. REO: Foreclosed properties that remain unsold at auction become Real Estate Owned properties. They have been repossessed by the lender, such as a mortgage services company, who is now attempting to sell them through Realtors and other means. Such sales can take years, which means that REOs, left empty and neglected, are often in the worst condition of all. There can be water damage, vandalism, overgrown landscaping and the like.
You can find listings of distressed properties on the Multiple Listing Service, websites like those sponsored by Fannie Mae, Freddie Mac and the Department of Housing and Urban Development, bank websites and specialty websites like RealtyTrac.
If you’ve decided to bid on a foreclosure, be aware that distressed properties are normally auctioned off “as is” and can require varying amounts of repair, especially if former occupants were unable to afford their upkeep. This might be a deterrent for buyers with limited funds for repairs or who need to move in quickly. Purchasers might also be responsible for any unpaid taxes, liens and encumbrances left by the previous owners. These can include fees for utilities, sewer and trash removal, as well as Homeowners’ Association fees and home equity lines of credit.
1. Search public records for liens and outstanding taxes, then hire a title company to run a full, insured title search. That way, you’ll have a better idea of the chain of ownership and what you’ll ultimately owe, should your bid win.
2. Hire a real estate agent, preferably one with a Short Sale and Foreclosure Resource (SFR) designation from the National Association of Realtors, as well as a reputable inspector and a lawyer who specializes in foreclosure sales.
3. Have the real estate agent help you set a maximum bid amount, based on comparable sales and values in the neighborhood, so you don’t get caught up in the excitement of the auction.
4. If you can preview the property in advance (often this is not permitted), listen carefully to your inspector’s suggestions so you have an educated estimate as to necessary repair costs.
5. Before the auction, discuss your maximum bid strategy, plus the expected costs of outstanding liens and repairs, with a full-service mortgage lender like Ark Mortgage so you can get pre-approved for your estimated loan amount. Unless you intend to pay cash, you will need a pre-approval letter to participate in the auction. Tell your Home Mortgage Advisor that you intend to buy a foreclosure. That way, they can budget for how much your taxes may increase once the home is in better shape. Understand that the loan amount will typically be based on the property’s current appraised value.
6. Attend foreclosure auctions of other properties before bidding at your own, so you better understand the process.
7. Be sure to register for your auction and reconfirm that morning since it is common for auctions to be postponed or canceled, especially if the owner comes up with a way to cover arrears. If you do plan to bid, arrive an hour before the auction starts and pick up an Auction Bidder Card.
If you do decide that purchasing a distressed property is right for you, we hope these tips help set you up for success. Contact Ark Mortgage for more information.
So many things to consider, but when approached methodically, it can be easily achieved.
It’s not an easy question, but rather one that involves many considerations.
Know your budget before you buy a second home.
A new home is like a blank canvas—everything is waiting for you, the first buyer, to add your personal touch. But to avoid expensive surprises after you buy, when purchasing a new construction home — especially in a subdivision or development — you should do some basic research before you sign the contract. Consider the following guidelines
New construction comes in three varieties:
If you are considering a purchase in a new subdivision, ask yourself, how customized and unique are you hoping your house to be? Keep in mind that in subdivisions you can choose from various materials and finishes, but there’s usually a limit to how much you can change, and floor plans are typically not customizable. Some builders will allow you to purchase your preferred materials separately if they don’t supply them, but they may or may not credit you to cover those costs.
Other issues to consider: Subdivisions are not usually built in the center of town. Will the commute become an issue? The properties might be built closer together than houses outside developments. Will you mind having less privacy? And are you ok with minimal landscaping? It might take years for the area to look “lived in” with mature trees and plants.
Unless you are paying cash, work with a good Mortgage Advisor licensed in the state you are purchasing in. Some builders will insist that you use their lenders, but often you can override this. Sometimes their lender may offer monetary incentives, but you very well might do better elsewhere, especially with fees and how they structure the loan. Your preferred lender might be able to structure a deal that, when taking into account loan program, interest rate, down payment, length of term and many other factors, can save you tens of thousands of dollars in the long run over the builder’s lender.
Make sure you hire a Buyer’s Agent to represent you and protect your interests. In most subdivisions and developments, the on-site real estate agent works for the seller, not you. Their job is to maximize the developer’s profit. Buyer’s Agents are normally compensated by the builder or Selling Agent, but they work in the buyer’s interest. Make sure to have your Buyer’s Agent contact the builder before your initial visit (otherwise, they might not get paid!) and even if the builder discourages it, have them at every walk-through and copy them on all correspondence. They can advise you how to negotiate the purchase price. Be forewarned: some builders don’t like to drop their prices but may consider paying for closing costs or throwing in upgrades. Your Agent may have knowledge as to a particular builder’s negotiating style.
Aside from your Buyer’s Agent, others on your team should include a real estate lawyer since builder’s contracts and addendums can be confusing. Also make sure you have a competent inspector who should accompany you on your final pre-closing visit, so you can write up a “punch list” of requested repairs of anything not completed as per the sales contract.
Research the neighborhood before purchasing. Personally visit the schools, the houses of worship, the shops, and the neighborhood at different times of day. Search social media for comments about the builder’s other projects. Were the owners happy with the construction? With the amenities? Also, check out the zoning laws so you know what might be built in the neighborhood in the future.
Check the builder’s reputation before purchasing. Ask about the projected date of completion of the home and then add on a few months — construction can often run overtime. Be sure your contract includes a cost escalation clause to protect you against rising prices.
Don’t settle on a layout based on virtual reality. Ask if there is a model of the home that you can visit, even if it’s part of a different development or located in a different town. Understand that the size or dimensions of the lot you choose may require the final design of your home to vary from the model.
Also understand up front what exactly is included in the standard purchase price because the model homes they show are typically packed with upgrades that may not be included in your price. Be sure you can afford the colors, finishes, and fabrics of your choice. Ask if the building lot and landscaping are included in the sale price or will require additional payment. When your budget won’t include everything you desire, choose square footage and location over upgrades. You can always upgrade later but you can’t affordably increase the size of the home or move it to a different location. Also, never over-improve. Owning the most expensive home in a subdivision may impede resale later.
Get everything in writing, including a home warranty, and know in advance what the warranty covers. Check out the rules of the Homeowner Association (HOA) if there is one and the monthly required fees to maintain the upkeep of the development. Finally, ask the builder to leave any leftover paint, tiles, and carpet scraps behind. They will help you maintain the property as well as assist you when shopping for furniture and decorations.
Always find out how much home you can afford to buy before you shop, but if you are ready to acquire your new property, contact one of our Mortgage Advisors ASAP. We’ll give you great guidance and make sure you are getting the best loan for your situation.
The five steps you should take before stepping into an open house.
Buying a house involves so much more than just touring homes and picking out your favorite property. Here are the five steps you should take before ever stepping into an open house.
Determine your MAP (maximum affordable payment) to understand what you can comfortably afford. How? Review your assets and debt with a great mortgage lender like Ark, who will provide you with different loan scenarios to mesh with your other financial goals. Knowing your MAP allows your mortgage services advisor to help you effectively budget and will help ensure you only consider homes that fit within your means. Use Ark’s mortgage calculator to help you determine your MAP.
The next step is to decide where and how to obtain your down payment. You can put as little as 3% down for a conforming loan or 3.5% for an FHA loan. In some situations, the source of your down payment funds can be a gift from immediate family members. Discuss this with your Personal Mortgage Advisor and start the process of gathering your down payment.
Your MAP will help you decide on other aspects of the home purchase: what size of home you can afford in what neighborhood and with which amenities. Now is a great time to decide your priorities. A home choice consists of location, condition, and price. Naturally, everyone wants a home in the best neighborhood, in the best condition at the lowest price. Unfortunately, buyers typically get two out of the three. A home in great condition in the best neighborhood will likely not be available at a low price. Alternately, if you are willing to compromise on neighborhood or condition (a fixer-upper, foreclosure, or short sale, perhaps? A regentrifying neighborhood?), you can negotiate a better price.
Start home shopping online. You’ll quickly get a sense of prices for different styles and sizes of houses in various areas. Photos and virtual tours will educate you on the value you can expect at different price ranges. Then start touring several neighborhoods until you find one that meets your requirements.
Next, begin to assemble your Home Purchase Team. Aside from your lender, you’ll need a great Buyer’s Agent, an attorney, and a residential home inspector. Start with the Realtor (a real estate agent who belongs to the National Association of Realtors), and they may be able to refer you to the others.
Why use a Buyer’s Agent instead of the Selling/Listing Agent you might meet at an open house? A Selling or Listing Agent represents the seller, not you. Their job is to maximize the seller’s profit. The services of a Buyer’s Agent, on the other hand, are typically free of charge to the buyer (paid by the Selling Agent who shares their sales commission) and is required to act as your fiduciary, putting your interests above their own. They will help you determine an appropriate price to offer for a home; based on recent sales of comparable homes in the area. They will guide you through the entire purchase process, from the first home tour until handing you keys at the closing table.
The home inspector is the person who will examine the home you intend to buy before you enter into a contract (in some areas, you enter into the contract first and have a pre-determined amount of time to get an inspection before things progress further). To find names of licensed inspectors who have conducted 250+ inspections and who are required to adhere to a strict standard of ethics, contact ASHI, the American Society of Home Inspectors.
Most buyers invest in a structural inspection, but others add on a pest inspection, an inspection for radon (an odorless but dangerous gas) and other precautions depending on the house in question (pool inspection, mold inspection, well/water inspection, etc.). If issues arise concerning the home after an inspection, your agent will insist the Seller remedy these issues. They may also help you renegotiate your offer to offset the expenses of curing these problems yourself.
When selecting an attorney, it makes sense to utilize one with an established real estate law practice and significant experience with local real estate transactions. Lawyers’ fees vary, so shop around but remember, you often get what you pay for. A home might be the most significant purchase of a lifetime; don’t skimp on protecting yourself and your investment.
Only after you have determined your MAP, analyzed your budget, figured out the source of your down payment, established your priorities, and assembled your team should you start venturing out and exploring the local home inventory. Armed with the best possible professionals, you’ll be in the strongest position to move forward and find your dream home.
One of the main concerns homeowners have when upsizing (moving into a larger or more expensive home) or downsizing (moving into a smaller or less expensive home) is timing.
How can you be sure you’ll sell the first home in time to have the money in hand to purchase the next one? Alternatively, what happens if you move forward and buy the second home before selling the first? In terms of mortgage lending, how can you be certain you’ll qualify and won’t overextend yourself financially? And if you do sell one and buy the other but the closing dates don’t coincide, where will you live in the meantime?
Luckily, there are several ways to solve these issues.
Many buyers’ mortgage services won’t approve them to own two homes at once. Be sure to use Ark’s mortgage calculators to estimate how much of a loan you can qualify for, based on your monthly income and debt. If you must use the proceeds of your current home to pay for your next one, make sure that when your Realtor lists your home on the Multiple Listing Service, they include an explanation that the sale is contingent on your finding your next property. This tells potential buyers that you are currently house hunting and may not be able to close right away.
Some buyers might not be in a rush to close and will love the house enough to be willing to work within your time frame. They may be willing to go into contract with a closing date to be determined. This might work especially well if you decide to sell your home in the winter because many relocating families may not want to pull their children out of school mid-term. The benefit for you in securing a buyer early is that when making an offer on your next home, the seller will be more likely to entertain your offer. They won’t be worried that you might not be able to close on your home and afford to buy theirs.
One consideration, however: some potential buyers might have a mortgage rate they want to lock in and may have to close by a certain date. You may have to be a little more flexible in your sales price to compensate them if their rate increases while they are waiting for you to find your next home. If they are working with Ark Mortgage for their mortgage services and have secured an Ark Certified Pre-Approval with Rate Protection, this might be less of an issue because their rate may be locked in for 90 days. Have them contact Ark for more information.
Have your attorney insert a “sale contingency” in the contract for your next home. This means you only agree to buy the home if you can sell the one you currently own. Be forewarned: sellers won’t always accept this contingency because they run the run the risk of your current property not selling. Meanwhile, they could have lost other potential buyers because their home was “off the market” waiting for yours to close.
Finally, your attorney can also arrange for a “use in occupancy” agreement as part of the contract for the sale of your current home. This would alert potential purchasers that you reserve the right to remain in the home and pay them per diem rent to cover their cost of ownership (which might be higher than what you used to pay for mortgage/tax/fees) until you find your next perfect property. Normally, you would be required to escrow a security payment as well, just as in a rental agreement.
ArkHomes
400 Rella Blvd, Suite 300
Montebello, NY 10901
(888) 275-8501
Shulum Ekstein
ExTeam LLC
412 Main Street Monroe NY 10950
(845) 388-1450
