For those working with me or soon to work with me, YES, foreclosures/bank-owned properties CAN be a good deal and short sales CAN be nice houses and good deals but if you are a first-time buyer or if you are getting an FHA loan, PLEASE, PLEASE think first before you consider writing an offer on them.* Just because YOU believe a bank-owned home, short sale, or pre-foreclosure is a good deal--or a STEAL--doesn't mean it's the home for you.
What I mean is, those deals are PERFECT for the right Buyer. Cash Buyers that are true investors are good Buyers for these homes. Buyers that don't have to move quickly may be appropriate (many times, there are extensions to a contract and if you're needing to move now, it can get tricky). Buyers that have at least 5% down or more are potentially good buyers for these homes. Buyers that can stand to lose a couple bucks for inspections (if there is even any utilities turned on), have the guts to waive inspections completely (NOT a good idea for buyers, usually), or have their $1,000 of escrow money held up indefinitely can be good Buyers.
However, if you are a first-time buyer, are using any state, federal, or city/county-sponsored down payment program or if you want to utilize AmeriDream or Nehemiah, or if you just need your closing costs paid for you, then the bank-owned/short sales are probably completely inappropriate for you. They are typically inappropriate for financing with an FHA loan, especially if you are going to use Nehemiah or ask for any closing costs be paid for you by the seller (unless you're using the FHA 203K/"Rehab" loan).
I'm SO sorry, but that is typically the case. Banks won't pay closing costs and they won't make repairs.* They are NOT in the real estate business; they are in the loaning money business. Short sales don't work with these types of loans b/c the owner doesn't have any money to make repairs and they owe the bank more than the house is worth. Sometimes, pre-foreclosures can work if the homeowner has equity in the property but many times, the listing agent or the Seller may not understand the process and can slow it down so much that the pre-foreclosure becomes a short sale.
The good news is that there are a lot of other homes that are for sale in my area, so you can still get a good deal on something in spite of a lot of homes not being appropriate for you.
So, basically, if you don't have the 5% down payment or if your credit score isn't what it needs to be to qualify for a conventional loan and you have to get an FHA loan, it's cool to buy a single family home, as long as it's not bank-owned and the owner can't be in trouble with their mortgage. If it's a townhome ownership, that's cool and the association fees are very small usually with townhome ownership. If it's a condo that you're looking into buying, then you should make sure your real estate agent is ONLY showing you FHA-approved condos.
A leading real estate broker in my market gives his view of foreclosures and short sale properties:
http://activerain.com/blogsview/423281/The-Dark-Side-of Take a look. He's a great writer and obviously care about those he works with.
I hope this helps.
* Waiver: I am not, nor have I ever been a short sale specialist, loan officer, etc. The information contained in this blog is only my own thoughts, beliefs, and interpretations and may/may not be accurate according to some people. :)
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