Purchasing a Foreclosed Property
We are all aware of the rising Real Estate market in the Denver Metro area and those of you who are looking to purchase a home this year may be feeling a little discouraged and overwhelmed. One of the most common questions I get is “can you buy a foreclosed property with an FHA loan?”. The answer is yes, but it doesn’t necessarily mean that buying a foreclosed home is an opportunity to save money. Or the option of buying with less money down, in fact it may be the opposite. Yes, buying a foreclosed property it may be listed below market value, but there is something really important to remember about these properties. Typically they need some TLC, not always, but very often this is the case. The other thing to consider is that these properties are usually the cream of the crop for investors, who many of the times pay cash or have the ability to put more money down and/or even overbid on the properties.
Now, I’m not trying to discourage, just wanted to be honest and upfront to inform you of the realities of foreclosed properties. I think there is a common misconception that purchasing a foreclosed property may be the best option if you are unable to qualify for a higher purchase price, thinking that is more bank for your buck so to speak. I’m not here to say it can’t be done, but again informing you of the realistic expectations. With this being a sellers market, this may not be the best market for you to be searching for only foreclosed properties. If you are then you need to prepare yourself and have some more funds saved in case you should need to put more money down or possibly overbid. You may even look into a renovation loan because many of the banks like to see that a buyer is purchasing the property with the plan of renovating, which increased the value of the home. This is a win-win for the buyer and the seller (bank). BUT with a renovation loan such as the FHA 203k, you will be required to put forth the down payment of 3.5%, there is no down payment assistance for these programs.
Bottom line, don’t set up the expectation of being able to find a foreclosed property for your purchase in order to help you get into a home faster, it would actually be the opposite. If you have the time and are willing to wait then put a little more money aside and be prepared to have a backup plan. This is also not the type of property you want to be searching for when your lease is up in a few months. You will need to have an open timeline because finding these properties may be a little more difficult and again may be up against many bids.
If you are needing down payment assistance then purchasing a foreclosed property may also be a little more difficult because again you are going to be up against those who are putting more money down and overbidding.
Please give us a call if you have any questions, we are here to help and can give you some guidance.