what is foreclosure

What is Forclosure: The Ultimate Buyers Guide

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Are you looking to buy your next home at the best price possible?

You may want to consider purchasing a foreclosed property.

Often, you can buy a foreclosure at a price that’s well below its’ actual value.

According to Home Buying Institute, studies show that buyers of foreclosed properties save an average of 27%. A 27% discount on a $300,000 home equals savings of over $80,000.

Unfortunately, many people miss out on the opportunity to buy this reduced-rate real estate because they are not familiar with how foreclosure works.

If you might be wondering “What is foreclosure?”, then you are in the right place.

Want to know “How does buying a foreclosure work?”

We’ve got the answers you need.

Read on to find out what you should know if you are considering investing in foreclosed real estate!

What is Foreclosure?

Foreclosure is what happens when the buyer (or buyers) cannot or will not pay the required mortgage payment on their real estate loan.

Often, the term homeowner is used when discussing the foreclosure definition. However, the person or people who are living in the home are not actually the homeowners because they still owe on the balance of the house.

Usually, buyers will take out a loan from a bank or other lending institution to purchase a property. Then, they will have to adhere to the terms of the mortgage loan until the house is paid for in full. While payments are being made on the property, they do not own the property outright.

Should the buyers fail to make the arranged payments, the property enters foreclosure. At this point, the house may go to an auction. At an auction, buyers will bid on the property, and the winner pays the amount offered on the spot.

If the house doesn’t sell at an auction, then the lending institution will assume ownership. This may cost the lender several thousand dollars.

The foreclosed home then is sold by the lending institution. They will attempt to sell the house at a price that will cover whatever it has cost them, but the price is usually much less than if you purchased the home off the market in the traditional way.

Why Do Foreclosures Occur?

According to statistics published by Realtor.com, one in 13,000 homes will end up in foreclosure.

There is a wide range of reasons why a house ends up in foreclosure. These include:

  • The owner lost their job and cannot afford the mortgage payment
  • The property owners abandoned the house, and they are no longer paying their loan payments
  • The owner encountered a variety of unforeseen financial hardships, such as caring for a sick family member and can no longer afford to make payments
  • When the homebuyers purchased the property, their payments were out of their realistic price range, so they are unable to keep their mortgage payments up to date
  • Someone in the family got transferred to a new area (for their job or other reasons), and the dwellers could not afford to make two house payments

Whatever the reason, when a foreclosure occurs, the mortgage payments have gone into default.

Often, when this happens, the lender will attempt to work out a solution with the homeowners prior to entering into foreclosure proceedings. If they are unable to reach a reasonable solution to avoid foreclosure, then the lending institution will move forward with foreclosing on the property.

Smart Tips for Buying Foreclosed Real Estate

Buying a foreclosed home for a great deal is possible. But, it’s not guaranteed. If you are interested in purchasing a foreclosure, there are a few things that will help ensure you’re making a wise purchase.

Don’t Expect Price Negotiations

Unlike other houses on the market, the price of a foreclosed home typically leaves little room for negotiation.

Since you are most likely buying the property from the lender, you can expect an impersonal experience. And, the price that is offered is often the price that is required so that the lender does not go into further debt themselves.

Foreclosed Properties Are Typically Sold As-Is

Although you might be scoring a great deal on the price of a foreclosed home compared with similar properties, foreclosed homes may not be in “move-in ready” condition. Often, the owners have not maintained the property’s upkeep.

You might have to deal with repairs and improvements that you would not find if you were buying another house on the market.

Find Out the Owner’s Specific Requirements for Closing

When you purchase a foreclosure, you are entering a non-standard agreement. This means that the owner may have unique, specific requirements and procedures for closing the deal.

Prior to entering into an agreement, you should find out what the owner’s requirements are for closing and be sure that their requirements are acceptable to you.

Consider Potential Baggage

Foreclosed homes may come with unforeseen baggage, such as liens against the property or extensive repairs. Avoid making the common mistake of overlooking circumstances that may influence your purchasing decision.

If you choose to go through with purchasing a foreclosure, make sure that you have carefully weighed the pros and cons and that you are comfortable with the big picture. If you intend to buy, don’t commit until you are sure that you can live with whatever unusual terms apply to the sale of the property.

Contact Professionals Who Are Familiar With the Foreclosure Process

For buyers seriously considering purchasing a foreclosed home, it’s wise to consult the pros. Short-sale and foreclosure experts can answer all of your questions, including “What is foreclosure?”, and any other questions that you may have.

Before you buy, ask for advice from the experts.

Think you may be interested in purchasing a foreclosed home?

Check out our blog to find out more about buying a foreclosure!

consequences of foreclosure

Consequences of Foreclosure: 6 Ways Your Future Could Be Affected

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Losing a home to foreclosure can be devastating. Buying a home is a part of the American dream. When the dream ends in shambles you have to pick-up the pieces and rebuild.

Foreclosure can have long-lasting effects. Being trapped in debt is a negative emotional experience that can take a toll. Unfortunately, for most people it is the last and only option when facing significant financial hardship.

Some people, once all hope is lost, will simply abandon the property. Others will decide to stay until the bank takes possessions. Either choice can be humiliating and take years to recover from.

For those going through the process now, you’re probably wondering how long foreclosure will follow you. Continue reading to learn the consequences of foreclosure on your credit.

1. Uncertainty About the Future

Ten years ago when the country was facing a recession, many homeowners lost their homes. Unemployment was at an all-time high and families faced huge financial challenges.

As the country recovered, bankruptcy courts experienced a huge backlog. Days of homeowners remaining in their homes for years after the bank filed for foreclosure, have now ended.

Today, the impact of foreclosure is felt sooner. Now families have less time to come up with a plan for new housing.

If you have limited funds or can’t qualify for an apartment or rental unit, you could find yourself homeless.

Without adequate planning, an eviction is eminent. Not only could families lose their home, but possessions could be removed from the home and placed on the front lawn.

Once you decide you do not want to fight for your home, it is best to move before the information hits your credit report.

2. Ruined Credit Tops the List of Consequences of Foreclosure

Having a foreclosure on your credit is a big deal. If you are facing foreclosure, chances are your credit has already taken a hit. Once a judgement is entered against you, expect another drop of 200 – 280 points.

Credit scores run between 300 and 850 points, with 850 considered a superior rating. Most people experiencing financial problems typically have scores in the low 600’s and below.

The impact of a foreclosure on credit scores can drop your score to the lowest point on the scale. With a score below 500, it will be almost impossible to have credit extended to you.

Lawyers believe that people facing foreclosure should consider bankruptcy, which is easier to recover from, and also quicker.

3. Foreclosures Could Impact Your Employability

More and more employers are performing background checks on perspective employees as part of the hiring process. If your credit score falls below 600, you may be disqualified.

This may not be a problem for some positions. However, it could impact your chances of getting a call back for jobs in the finance industry.

The impact of foreclosure can arise later, even if you already have a position. Sometimes employers run random background and credit checks on existing employees. You could also have issues when seeking a promotion to a finance related position.

Under the Fair Credit Reporting Act, companies are required to give applicants a pre-adverse action disclosure. This is given whenever someone is not hired for a position due to information from a background check.

4. Restrictions on Fannie Mae Loans Could Apply

Following a foreclosure, the last thing on your mind may be purchasing another home. As time passes and your financial circumstances improve, you may have a change of heart.

You will want to know how foreclosure affects your credit when it comes to getting a home loan. Regardless of the type of foreclosure or if you had a short sale, you can expect a wait of 2 to 7 years.

There may be circumstances in which a lender may be willing to offer you a second chance, sooner rather than later. Not all foreclosures are a result of poor money management. Death of a spouse, a relocation or extended illness can lead to foreclosure.

Don’t be afraid to explain your situation to lenders. Just be prepared to present supporting documentation if asked.

5. You May Still Owe the Bank After Foreclosure

The consequences of foreclosures can last well beyond the point of losing your home. If your house is valued at less than what you owed the bank, you may be liable for the difference.

On top of all you’re going through, this is the last thing you need to deal with.

It is important to know if you live in a non-recourse state when facing foreclosure. Certain states do not allow lenders to seek relief for losses on foreclosure sales. Others have specific rules on what types of loans qualify.

A deficiency judgment is an option banks have to recoup losses on the sale of your foreclosed property. This means, if you owed the bank $100,000, but they could only get $75,000, a judgment for the difference could be entered against you.

Keep in mind, it could take a while for a property to sell. So you could get the bill years later.

6. Their May be Tax Implications

You will need to report your foreclosure when you file your tax return. This may be unforeseen consequences of foreclosures.

The lender will send you a tax form 1099-A to be used to record your foreclosure on your taxes. Like other 1099 forms you may receive, the information must be entered on the return.

Depending on how many liens was on the foreclosed property, you may receive multiple forms.

The average person who has gone through a foreclosure will not face tax penalties. However, you still must record the information and go through the steps to ensure this is the case.

You Can Survive Foreclosure

Going through foreclosure is stressful, but once it’s over you can breathe a sigh of relief. The sooner you can rebuild your credit the better.

The consequences of foreclosure may seem like huge obstacles that will plague you for years to come. Shake it off and create a plan to move forward.

If you feel foreclosure may be in your future, check-out our blog explaining what happens when you are facing foreclosure.

buying a foreclosed home

5 Massive Mistakes Investors Make When Buying a Foreclosed Home

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While having a second home is a dream for millions of Americans, millions more invest in homes as a way to build extra wealth or earn extra income. Some of the cheapest houses on the market are the foreclosed homes that people were no longer able to pay for. When you’re thinking of buying a foreclosed home, you have a lot of little issues to consider.

Here are 5 of the most common things to consider before you buy a foreclosed home.

1. Foreclosed is One of Many Options

Buying a foreclosed home isn’t the only option that you have when you’re searching for a home to buy. When you’re looking for an investment, there are lots of homes that are available and in great shape that are the same price as a foreclosure.

Foreclosures are popular and attractive to many homeowners because they are often some of the lowest priced homes on the market. However, when you buy a foreclosure, you could inherit a lot of the problems the property has.

You could be dealing with the liens against the property, which will lead to higher costs in the end. You could also be dealing with a house that’s in serious disrepair. There’s no need to spend your first year owning the house just doing construction work.

You won’t be making any money.

Take a look at what foreclosures are available, but don’t let your search stop there. You could be missing out on some fantastic properties if you don’t look beyond foreclosures and see which could be the best house for your budget.

2. Check For Trends

When you’re looking to invest in a house, you need to pay attention to which neighborhoods are on the move. While some neighborhoods might be out of your price range, if another one is seeing a huge spike in growth, take a look at preexisting houses.

For a quick turn around, look for hot artist neighborhoods or up and coming tech hubs. Lots of tech companies and art collectives appreciate the potential of large raw spaces like warehouses and lofts. With their creative perspective, they can turn a load of abandoned buildings into a movement in a region.

Pay attention to industries that are starting to buzz in your region. Make an investment where they are or where they’re headed. You might find some great deals in a forgotten part of town that’s ripe for reinventing.

Real estate agents, small business owners, and even the chamber of commerce will be able to tell you where things are headed in the coming years.

3. Don’t Go Out There On Your Own

While you might think it’s cheaper to pound the pavement and follow up on Craigslist leads on your own, you don’t know everything. Lots of real estate agents know the complexity of an area or what’s going on with the foreclosure market.

Having someone who knows about buying and selling properties to be on your side is a huge plus. They know which properties yield the highest returns and generate the most attention.

While a real estate agent can help you to find properties that are sure winners in the market, they don’t know everything about the law. You’ll need to find someone who knows about real estate law to navigate foreclosures or the legal entanglements they can carry. While your real estate might be able to give some general advice, don’t rely on them for anything legal.

4. Know The Score

Beyond just knowing which neighborhoods are hot, you’ll need to do some additional research into what’s happening in that neighborhood. Knowing why a neighborhood is hot can help you to make a well-educated decision on whether or not to invest.

When a neighborhood has a lot of availability, that means the prices will be lower. While lower prices mean a lower bar for entry, it also could mean that the neighborhood will take some time to start climbing to become a high-profit center.

Keep an eye on what the sales numbers are as well as the prices of homes in the region. If there has been a steady increase in sales, you know that things are on the incline. If sales have dropped or remained stagnant, there isn’t a lot of growing that’s going to happen.

Hire a qualified agent and a lender to help you determine where to invest. While you’ll need to do a little work to become familiar with the process of foreclosure and all its lingo, it will reward you in the long run. You’ll have better bargaining power when you know what to look for and which pitfalls you could be avoiding.

5. Inspections Are A Must

While your home might look great and the owner might be pricing it to move, don’t move so fast. The next step will be to make sure that you hire someone to do an inspection on the home. If you fail to do a proper inspection, you could be stuck with a death trap or at least a place with a mold issue.

While your inspection can alert you of problems, it could also lower the cost of your new home. When you point out what’s wrong, the owner might knock a few dollars off the price.

Make sure you know what problems to anticipate and which you won’t have to deal with before you buy.

Buying a Foreclosed Home is an Investment

When you’re buying a foreclosed home, you’re paying a downpayment on an investment that you want to see a return on. In order to see a return, you need to have a solid grip on how the market works. Your best bet is to get to know all of your options before you commit.

If you’re interested in what a short sale listing agent does, check out our guide to understane more of how the market works.

what does funding mean

What Does Funding Mean in a Real Estate Deal?

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5.5 million homes were sold nationwide in 2017, despite the bleak economic forecasts. While the naysayers will say the real estate market is dead, many families are buying homes. This is because they’ve found ways to fund their homes.

As a matter of fact, the projected forecast is set to increase to 6.3 million in 2018.

Whether you’re buying or selling a home, you should be familiar with all of the terms associated with your transaction. If you’re wondering, what does funding mean, then you’ve found your answer.

Keep reading to learn more about the real estate closing process and how and when funds are dispersed.

What Does Funding Mean?

If you’re looking at the real estate market funding, the first thing you should do is educate yourself. Funding is the process of having the mortgage lender release funds to the escrow before closing a real estate transaction.

And since funding occurs a few days prior to the close of the transaction, the interest rate kicks in from the date of funding.

In the US, the funding process differs in every state according to state laws. For any funding to be granted, all the conditions of the lender need to be satisfied. Loan documents must be signed.

Take California for example. Buyers of new homes sign loan documents and the closing take place a few days or even a week later. This is also called a dry closing.

This is unlike other states, particularly the East Coast, where closing occurs the day the loan documents get signed. This is called a wet closing.

An example of the mortgage process is described further. So read on.

What Do You Need to Fund a Loan?

First, the TRID (TILA RESPA Integrated Disclosure) is now required by law. According to the TRID process, before you can sign loan documents, a closing disclosure is sent to the buyer. After the mandatory, three-day waiting period, the buyer is permitted to sign mortgage documents.

This may seem like a lot of paperwork, but TRID was created to simplify mortgage documentation. It was also made to make documents easier to understand, curtail fees for home buyers and prevent unforeseen issues at closings.

If you want your loan to get funded, you must sign all these documents.

Notarization of The Documents

Documents submitted for loan purposes require notarization. So, buyers will have to carry two forms of identification and sign them in the presence of a public notary.

But fear not.

Anticipating the needs of the business, many escrow employees and title company workers are also public notaries themselves. If you’d prefer, you can also get a mobile notary to come over at a location of your choice.

The Input of Underwriters

Once all concerned parties have signed the loan documents and paperwork for the escrow, they send it to the lender for review. This is where underwriters come in. They study the loan documents and assess how much risk the lender is assuming.

They consider the land, the property, and the borrower. Real estate underwriters are different from securities underwriters. These people specialize in real estate, appraise the value of the property and the credit health of the borrower prior to making their report.

Underwriters start work only after the loan conditions get satisfied. In some cases, the documents are also not drawn until the conditions get satisfied, also called “prior to the doc.” However, most of the lenders will ask for loan conditions to be completed before funding.

Varying Loan Conditions

Sometimes, an appraisal review or a receipt of all bank accounts may be requested as part of the loan conditions. There could be a clause about the installment of appliances and in working order prior to closure. You can never really know what loan conditions may be needed.

For example, an FHA loan condition stipulates that the paint chips around the house must be physically picked by a worker.

When the lender reviews the documents executed for the loan, he will get the fund ready. This translates to having the money wired to a title or escrow company. On receiving the wire transaction, the closing agent can record your file.

Sounds easy enough, except closing agents have specific times during the day when they can record a file. Some may have only one time a day, others multiple times per day.

This is important because if the fund wire comes in too late at a place with a single recording time, the transaction doesn’t close until the next day.

Getting your funds is the key to closing the sale of a home. It also adds to your interest. You can try to expedite the process of closing by asking when the loan funds will arrive and if same day closing is possible.

Caution About Fees

Various fees and charges get levied during the mortgage process. Closing costs will include these fees. These are fees for doing a title check, appraising your property, processing your loan, and any other service offered.

On the day of closing, you will have to bring in a check covering all those closing costs.

If you want to know what your estimate will be, multiply your loan amount by 3%. If you’re buying a home in a very expensive zip code, multiply that by 5%.

After applying for your mortgage loan, you will get a rough estimate of closing costs. But don’t get shocked if it ends up being much higher than the initial estimate.

If your lender estimates a 10,000$ closing cost, then you should be ready with a check for 11,000$. Talk to your lender, and find out what you need, whether that’s cash reserves or other financial details. He can help you understand the details of the funding applicable to you.

Closing

While TRID and the entire funding process seems simple enough, a mortgage professional can help you navigate through all the procedures and paperwork.

So what does funding mean for you as a buyer or seller? If you still don’t have an answer or still have doubts about funding, loans, and refinancing, you can find more information here.