First Time Homebuyers- 10 Things to know when buying foreclosures

It's a fact, foreclosures are popular. You can buy a home with huge savings, and with an $8000 tax credit to boot. We all see those ads where time is running out on the tax credit, and many 1st time homebuyers entering the market are going after foreclosures at a high rate. But what are the drawbacks for a first time homebuyer when buying a foreclosure?

Well for starters, many foreclosures require repairs, sometimes extensive.  Almost all buyers know that. This listing on 1604 Norris Landing Dr in Snellville GA is an example of that.    What most buyers don't realize until its too late is the HUGE competition for foreclosures, especially affordable ones.  Buyers that were priced out of the market a few years ago now have the ability to afford many of these homes.  The ones priced below $150,000 in a market that once averaged $250,000 are going fast.  But when buyers have found this perfect home, they feel pressured to purchase without inspecting, just to get a good deal.  But is it a good deal? Lets look at some things.

1. 
   
   If you're a handy person, you have minimized some of your worries.  Most of the cost of repairs is labor.  If you have the time and patience (and I want to stress "If", please be honest here!), you will save big, especially on cosmetic repairs.  The savings you keep there you can spend on other repairs that require a professional, like heating and air.
2. 
   
   Not a handy person?  Then find a professional that will accompany you on your home search, more than likely a family member.  Sometimes to make a decision on wether a home is a good deal, you'll need  to get a quick repair estimate of the true costs.  You don't want to buy a home thinking you'll need $2,000 for repairs only to find out you need double that amount.  Remember, an inspection report will tell you the things that need repairs, not how much those repairs will really cost.  That's very important.
3. 
   
   Get prequalified.  I cannot stress this point enough.  There are purchase/rehab loan programs out there for homeowners purchasing thier primary residence.  The most popular is the FHA 203k rehab loan that allows you to get a loan for the purchase price and the cost of the repairs.  If you find out how much you can qualify for, then you'll know just what kind of budget you're working with. If you happen to stumble on a home that doesn't require tons of repairs, all the better.
4. 
   
   Always, Always, did I say Always?...get an inspection, even if the home looks great to the untrained eye.  Foreclosures are sold as is.  Some banks may repair items, but in most cases they wont.  If the home looks perfect, there may be hidden issues in major systems like heating and air, plumbing or electrical even in new construction.  Remember in new construction foreclosures, sometimes the home is not completely finished or "punched".  Always get an inspection.  If the bank requires an inspection before you make an offer and wont entertain an inspection contingency, it's still worth it to get an inspection.
5. 
   
   Remember that some vacant bank owned properties are being vandalized.  They are taking everything, from the cieling light fixtures to the granite countertops, kitchen cabinets and appliances.  The newest trend is A/C air handlers, which are being stolen at an alarming rate,  and gas meters.  Who knows why they're taking these things, but it can work out as a lower priced home for you.  Want to know what these things cost quickly?  If you have a smart phone, visit Home Depot or Lowe's to get pricing on supplies while you're still looking at the home.
6. 
   
   Get an offer in quickly.  You know that home that peaked your interest because it's in a gorgeous neighborhood and it's priced more than 30% below current market rate?  There's at least 5 more people that feel the same way you do.  Gone are the days when you could view a home, think about it, view it several days later, bring your significant other to look at it, mull it over some more and then make an offer.....not happening in this foreclosure market any more.  You'd better have your significant other there, or any other decision maker for that matter, and put in that offer as quickly as possible. That still wont guarantee you the contract. If, while you're negotiating with the seller, another offer comes in, the listing agent is required to then send out notifications to all offerees that there are multiple offers, giving everyone a chance to change thier offer if they choose, to make their offer more competetive. 
7. 
   
   All cash offers is not a guarantee of winning a bidding war.  Many people think this, but it's not always true.  The bank is looking for the highest and best.  If the cash offer is not the highest, sometimes the bank may take that offer, especially on a home that does require extensive repairs.  FHA loans usually require the home to be at a minimum livable standard, so if the FHA loan buyer's offer is higher, and the cash offer is slightly lower, the bank is in a better position with the cash buyer to get that forclosure sold without any "lender" required repairs, because in the case of a cash buyer, there is no lender.  But if the foreclosure property is in great shape, then the highest price usually wins out, cash buyer or not.
8. 
   
   Bidding Wars.  Bidding wars are not fun.  You've set your mind on a particular property after searching long and hard, submitted an offer, then find out a day later while you're in the middle of negotiations that there are now other offers coming in.  Remember that the listing agent has to submit all offers to the bank, even if you are currently negotiating with the bank.  What can you do if you find yourself in this position.  All you can do is give your "highest and best" offer.  If you're already at the highest you can go in price, try asking for less seller paid closing costs, though that will require more cash from you at the closing table. Or maybe you can change your closing date.  It may make a small difference if you can get your loan to the closing table sooner. Finally, if you can increase the price do so.  Remember with a bidding war the bank wants the highest net, that will require the least amount of lender required repairs, and that can close quickly.
9. 
   
   Don't think you want to buy a foreclosure with this much pressure?  Try buying a HUD home.  HUD offers a much easier process when it comes to buying their homes.  You have some time to take a look at the property, becuase hud will list the bid end date on all it's lsited properties.  That means you know just how much time you have to do your decision making and get it an offer.  HUDs bid winning process is simple - it's the highest net to HUD.  You must have a lisenced agent submit your bid, homebuyer's cannot submit their own bids.  To view up to the minute listings in these Georgia counties: Gwinnett, Fulton, Dekalb, Cobb, and  Rockdale counties, follow each county link to our HUD site, or you can view all HUD listings at http://www.hudpemco.com/. Chapman Hall Realtors Atlanta Northeast is a Certified HUD Broker.  For a limited time, HUD is offering $100 down payment on any buyer purchasing a HUD home and using an FHA loan to fund their purchase in California, Hawaii, Georgia, and Guam.  If you have more questions about the HUD $100 down program, send us an e-mail. Another great source for finding HUD Foreclosures in your area, even those outside of Georgia, is HUDforeclosed.com
10. 
    
    When buying any foreclosure, always ask the seller to pay for a 1 year home warranty.  When you have a home sitting for a while, things can come up later after you've closed that an inspection may not have found.  You can minimize your out of pocket cost by having this warranty.  Make sure to remember to renew it each year, keep an alarm on your smartphone to remind you

These are just a few tips to help you navigate the world of buying foreclosures.  Please feel free to e-mail us if you have any questions, or leave a post, we'd love to hear from you!