These days it is not uncommon to know someone who is or has lost their house to foreclosure. These turbulent times, uncertainty in the job market, foreclosures in record numbers in the housing market and no immediate quick fixes at hand make people wonder how they are impacted by the foreclosure mortgage market mess.
SUDDEN STOPS AT HIGH SPEED
Just when everyone thought the ride would never end in 2006- the housing market came to a sudden stop.
Unfortunately, perpetual motion does not.
Mortgages obtained during 2005-2007 began to reset, Many consumers were unaware that their payments would increase by 40-50% or more.
Borrowers failed to comprehend the fine print, which in most cases stated that of they were to default on the loan repayment-the lender (could and often times did) accelerate the loan repayment and could in essense call ythe entire loan amount in.
This displaced many families.
TREADING WATER DIDN'T HELP
As the economy weakened, many families found themselves treading water. Rising costs in food and fuel added to the pressure of increased costs of carrying credit such as credit card payments (which could reset to 32.79% if repeatedly late) forced families to "abandon ship".
Homes fell in record numbers to foreclosure, and the banks were in deep trouble with boatloads of bad debt. Foreclosures affected jusst about everyone.
When a home in your neighborhood falls into foreclosure a number of things happen.
1) Property Values of surrounding homes are affected.
2) Home falls into decay and is unkept.
3) Burden on existing homeowners for unpaid HOA dues
4) The neighborhood as a whole experiences an increased excelleration in depreciated values
EXPONENTIAL EFFECT
The more homes in a concentrated area that fall into foreclosure, the more the reduction in existing home values losses are compounded. For example if 1 home falls into forecllosure n your block -it may decrease your home value by 5%. Howwever if 5 homes fall into foreclosure, the value of your home could increase by 15-20%.
Certain areas are harder hit than others. Over 80% of homes in America are financed. Which means the market collapse was not regional it was National. With fewer homes changing hands, and additional homes being added to the inventory the numbers have swelled to epidemic proportions.
MISCONCEPTIONS IN BUYING FORECLOSURES
Many "investors" are under the flase impression that lenders will settle for pennies on the dollar. While it is true they may be eager to dump their bad debt (Unpaid loans) there are minimums they will accept. It is not "carte blanche" to write your own price. The same is true for auction properties. Lenders may be willing to work with you to recapture some of the previous bad debt by re-writing loans to new buyers of distressed properties. This is usually stated on the lsiting agreement. Wells Fargo for example, is one lender who is utilizing this practice, and their are others.
AS-IS
Most foreclosures will need some form of repair. Often they are missing appliances, doors, cabinets, and have suffered some degree of neglect and damage.
Heat is a real problem in Florida and other warm climates. Beware of Black Mold and its toxic effect.
Not only is having a Home Inspection Important it could be critical to your health. Consider getting an air quality inspection as part of the process of buying a home.
KNOW HOW MUCH HOUSE YOU CAN AFFORD
Most lenders require 3.5% DOWN PAYMENT. VA loans are still possible with no money down. Talk to your lender about financing options. What lenders look at:
1) Current Income
2) Current debts
3) Credit card debt
4) Car payments
You need to have a good overview of what you earn and what you spend- thi sis commonly called an income to debt ratio. A healthy ratio would be 28-35%.
PLANNING AHEAD
Buying a home is a serious undertaking.
KNOW WHAT YOU ARE ABLE TO AFFORD
CONSULT A LENDER
PAY OFF AS MUCH DEBT IN ADVANCE AS YOU CAN
KEEP GOOD RECORDS
STAY WITHIN YOUR BUDGET
SHOP CAREFULLY.
ASK FOR HOME OWNER ASSOCIATION DISCLOSURES IN ADVANCE OF WRITING AN OFFER.
ALL OF THESE THINGS WILL BETTER PREPARE YOU FOR YOUR JOURNEY INTO LONG TERM HOME OWNERSHIP.
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