The Most Common Issues to Look out for When Buying Foreclosed Homes

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One in every 2,402 homes in the United States gets foreclosed.

Delaware has the highest rate, with one in every 831 homes facing foreclosure.

Buying foreclosed homes can seem like a great deal or investment. Often times, individuals who buy foreclosed homes “flip” them. In most cases, this means they buy them, rehab them, then sell them for market value.

While it seems amazing to buy a house for dirt cheap, everything comes with a price. With a foreclosed home, the price isn’t necessarily monetary, but you may pay in other ways.

Read on to find out about some of the issues to look out for when purchasing a foreclosed home.

Buying Foreclosed Homes: Previous Owner Destruction

In most cases, the previous owner of the home was kicked out of their house. This is typically due to non-payment of their mortgage over a period of months.

Obviously, this is an incredibly grim situation and a low point in their lives. They may have even lost their home due to circumstances beyond their control such as medical problems that rendered them unable to earn enough money to pay the mortgage.

Sometimes, this means that they take out their rage on the home itself. They may destroy part of the property with a sledgehammer, rip out sinks and fixtures, or even vandalize the property. They may also take appliances like refrigerators from the house.

There is little you can do about this, except repair the damage that they did.

Neglect

Some homes are foreclosed on because the owner neglected the property. This can happen often for individuals who have second homes but can’t keep up their payments on their secondary residence. As a result, their home gets foreclosed.

If the owner knew they could not pay for their second property, they may have stopped visiting it altogether and let it fall into disarray.

There could be issues with molding, trash in the home, the pool having insects or vermin in it, rotting wood, problems with the roof, etc.

Neglect can also occur when the previous owner lived in the property. Some people are not capable of cleaning and keeping up their home, especially if they suffer from physical or mental disabilities. By the time the home gets foreclosed on, there could be huge structural issues with the house.

You may even have the unpleasant issue of purchasing a foreclosed home in which a former owner was an animal hoarder. Animal urine and feces can also cause the wood inside the home to warp and rot, and you may have to redo the floors completely.

There Is No Disclosure

You’ve probably seen television shows in which the characters purchase a house and the real estate agent must tell you that five people have died in it.

There is no such disclosure when the bank owns the home.

Disclosure doesn’t have to be about nefarious goings-on in the house. It can mean disclosing to the new residents that there is asbestos in the attic or that the floor is rotted in the kitchen.

Since the bank hasn’t lived in the property, like the former residents, they will have no idea about any of this information.

In some cases, you can obtain records to see if there is anything about the house you should know about. But mostly, you’ll be in the dark.

That is, of course, unless the house you’re purchasing is already famous either nationally or by local legend.

Cleanliness

When you move into a new home, it is usually clean and ready for you to move in. Even if the property hasn’t been vandalized or neglected by previous owners, there is no guarantee the home is going to be clean.

Even if the previous owners were not neglectful of their property, they still might not have been particularly clean people.

You’ll have to make sure you do a thorough cleaning of the house before moving in or starting to flip it.

Vandalism

If the home sat by itself with no occupants for a long while, it could have been susceptible to vandalism. This doesn’t always mean that the vandalism needed to have come from former owners, either.

Local teenagers might have known the house was empty and went there to party.

People may have realized it was abandoned and went into the house to practice their graffiti and artwork skills on the walls. Or, they may have helped themselves to fixtures and appliances inside of the home.

They may have also vandalized the outside of the home, with spray paint, glue or anything else they may have felt like doing at the time.

Unfortunately, because you’re the new owner, it will be your responsibility to repair all of this once the house is yours. This can be a costly project, and often times, banks don’t give credit to people attempting to remodel a foreclosed home.

Is Buying a Foreclosed Home Worth It?

Buying foreclosed homes can be worth it or more trouble than they’re worth, depending on what your purpose is. If you’re looking for a huge project to complete with your family or hired contractors, it might be one of the best things you ever do.

If you’re a huge fan of remodeling homes then selling them, they also might present a fun challenge for you and those who are in business with you.

For more information on all things related to short sales and buying foreclosed homes, visit our blog.

How Does a Short Sale Affect Your Credit Score?

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When a person defaults on their mortgage payments, they are often forced to lose their home to foreclosure or sell it via a short sale. Foreclosures often accompany bankruptcy and have a drastic impact on one’s credit and finances.

But does that mean a short sale will save your credit?

For the answer to “How does a short sale affect your credit?” and much more, keep reading. We’ll tell you everything you need to know!

What Happens During a Short Sale?

Put simply, a short sale means that you’ve sold your house for an amount less than what is left on the mortgage. But there’s a lot more to a short sale than its definition implies.

For example, why would a homeowner agree to a short sale anyway?

It is common for a homeowner to agree to a short sale in the event that they cannot afford their mortgage payments. It is often the last resort for people who don’t want to face all of the consequences of a foreclosure.

With that said, the homeowner is usually the one who initiates a short sale. It typically takes place after the home’s value has decreased by at least 20%.

Filing a short sale isn’t a quick or easy process. The financial institution that the mortgage is through is bound to lose a lot of money because they have to accept the sale of the house for a lesser amount.

So, short sales have to be approved.

Applying for a Short Sale

The process of applying for a short sale is heavy in paperwork and involves the input of multiple parties. In fact, it sometimes takes an entire year to finish processing the details of this sale.

This is the documentation you will need to gather:

Letter of Authorization

You will need to have a letter of authorization signed and notarized. The purpose of the letter is to give the bank permission to speak about the details of your mortgage with real estate agents or potential buyers.

Hardship Letter

A hardship letter has to prove that you are in significant, irreversible debt. It has to show that you are between 60 and 90 days behind on payments with no access to resources that can bring you up to date.

These resources can include:

  • Cars
  • Jewelry
  • Heirlooms
  • Vacation homes
  • Retirement plans
  • Cash or savings
  • Stocks or bonds

In this letter, you will need to include as much evidence as possible to explain your financial hardship. It might be something like divorce papers, paperwork from a repossession, tax returns, pay stubs, and bank statements.

Statement of Property’s Value

A qualifying document to display the value of your property would be an appraisal or a price opinion from a broker. And of course, the lower the estimate is, the higher your chances of having your short sale approved.

The purpose of this document is to prove to the lender that they won’t be able to sell the house for an amount that is equal to or surpasses what is left on the mortgage.

You should also include other details that might make the home difficult to sell. For example:

  • The crime rate has increased in the neighborhood
  • Numerous nearby properties are up for foreclosure
  • High tax or insurance rate
  • Poorly performing schools within the district

If the lender is convinced that selling the property will be a headache, they will more likely approve the short sale.

Contract or Purchase Offer

One of the best ways to have your short sale approved is to find a buyer who is willing to sign a contract or purchase offer showing their intentions. This will have to be put in writing because lenders don’t typically entertain offers that are tentative or finicky.

When you file for the short sale, you should have this documentation ready to go before you meet with your lender.

Settlement Statement

A settlement statement should accompany the proposed price. The statement will explain how much money the lender will make and how much will be lost.

The purchase price and other fees should be included as well. A real estate attorney or closing agent can prepare this paperwork.

How Does a Short Sale Affect Your Credit?

There isn’t a straight answer to tell you how a short sale can affect your credit. The reason is, the impact depends on what your credit standing was beforehand.

In most instances, a short sale can decrease a person’s credit score by 160 points or so. But if your credit was already low, it could take a harder hit.

Another thing to consider is that your credit probably already suffered before the short sale because of missed payments.

On the brighter side, the damage a short sale puts on a person’s credit isn’t permanent. Here are some tips to help you get it back on track:

Analyze Your Credit Report

Did you know that 4 in 5 credit reports have errors on them? These errors can cause your score to be even lower than it should be.

Take a look at your credit report and dispute anything that doesn’t belong. If you have those errors removed, you may see your score improve.

Take Care of Your Other Accounts

Don’t allow a short sale to get you down, it isn’t the only activity on your credit report that’s hurting your score. Make sure you are on time with all of your other payments, keep the utilization on your credit cards low, and don’t close accounts after you’ve paid them off.

Use a Secured Credit Card

Secured credit cards are designed to help people improve their credit scores. Using the card to make small purchases that you can pay off before your due date is one of the best ways to improve your score.

Need More Short Sale Advice?

Now that you know how does a short sale affect your credit, you probably want more information about short sales and avoiding foreclosure. We’ve based our entire website on that concept to help you out.

Follow us and you’ll find all the advice you need.

Foreclosure vs Short Sale: What’s the Difference?

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Most experts agree that real estate is one of the safest investments you can make.

Not only can you earn passive income from rental properties, but it’s also a safe way to make a long-term investment. But, buying real estate takes more than researching CMAs.

The type of property you buy is important, too. For instance, many investors prefer buying short sale or foreclosed homes.

Knowing the difference between foreclosure vs short sale is important if you’re getting into the real estate game. If you haven’t considered these types of properties yet, we’re here to help.

In this guide, we discuss the differences so you can make the most informed decision for your financial future.

What You Already Know

More than 65% of American homeowners have a mortgage. This means that they put some cash down on their home and financed the rest. The most common mortgage terms are for 15 or 30 years.

This means it will take the homeowner 15 or 30 years to own their home free and clear. Now, there are exceptions, like paying the loan off early or selling it before then. Some people refinance their loans, which can alter the maturity date.

Every month a homeowner pays money towards the interest, principal, and in many cases, into an escrow account. But there are times when the owner runs into an emergency or falls into extreme financial peril.

If this happens and the homeowner falls behind on their mortgage payments, they have some options. If none of the options help or they don’t qualify, the bank can start the foreclosure process.

What Is a Foreclosure?

A foreclosure is one of the least favorable options for a homeowner or borrower. This is when, after three to six months of missed payments, the lender steps in to take possession of the home.

This is a legal process and can take a long time.

The lender files a Notice of Default with the court. This is the pre-foreclosure period which can last up to 120 days. The borrower gets notified of the lender’s intention to take possession of the property.

The lender will have a set amount that the borrower can pay to keep the property. Usually, this is back payments, late payments, and added filing and administrative fees. If the borrower can pay the amount, they’re in the clear and can keep their home.

But, if they can’t amend the issue, the lender steps in and takes possession. From there, they sell the house at auction to recoup some of their money.

What Is a Short Sale?

During the pre-foreclosure period, borrowers can try to sell the property. This becomes a short sale home.

Don’t let the name fool you, though. It is not a quick process. The term “short sale” refers to the lender getting “shorted” on what the borrower owes.

In other words, say a mortgage balance is $200,000, but the home is only worth $150,000. In a short sale, the bank would have to agree to accept the $150,000.

Differences Between Foreclosure vs Short Sale

In a foreclosure, the lender recoups their money at an auction. Often, they don’t get the full value of the mortgage.

In a short sale, they don’t either, but there are significant benefits to the bank for agreeing to it.

There’s a lot of paperwork involved in a short sale. The first step is to prove the short sale makes sense for the lender. If it’s approved, the new buyer has to get financing from a third-party lender or pay cash.

If it’s getting financed, the third-party lender has to agree to the exact amount the original bank agreed to in the short sale. That means, there isn’t room for negotiating price.

Then, there are mounds of more paperwork. It can also be a lengthy process. Some short sales can take up to a year to process.

In both cases, the original borrower will lose their home. But in a short sale, it’s a softer blow to their credit score. In a foreclosure, your credit gets hit harder, and you will have financial repercussions, but it’s often more convenient.

But About Buying These Kinds of Properties?

If you’re looking to invest in these kinds of properties, the first thing you need to do is reach out to a professional. There are lenders, real estate agents, and lawyers that specialize in short sales.

You already know it’s an arduous process. Hiring professionals that understand the ins and outs of laws and guidelines will make the transaction go smoother.

Now, you also know that in a short sale, you have to get approved for financing first. You can’t find the home, negotiate a price, then find a lender based on the final sales price.

But the good news is that you can finance a short sale home pretty easily. With a foreclosure, it can be more difficult.

When you’re considering buying a foreclosure vs short sale, there is another thing to consider: The state of the property.

With short sale homes, the original borrower/homeowner has taken some steps to salvage their credit and financial future. At least, they do this as much as they can.

In a foreclosed property, the borrower has, in essence, just let it go. Often, these homes are in disarray and need a lot of work.

You may come across a short sale that is also distressed. But in most cases, the owner/borrower lives in the home until the sale goes through. This reduces the likelihood that it’s in complete disrepair.

You may want to do some updating or renovations, but for the most part, the home is in working order.

If you buy a foreclosed home, prepare for the worst. You’ll pay less than if the home is a short sale but you’ll make that up in remodels and renovations. Sometimes, you can spend thousands just to get the plumbing to work again.

Foreclosure vs Short Sale: Knowledge Is Key

When you’re considering you’re foreclosure vs short sale options, the key is knowing what you’re getting into.

Research all your options, know the timeframe involved in the process, and hire professionals.

If you’re still not sure if investing in these kinds of properties is best for you, check out our blog. We have more helpful tips on investing in short sale properties.

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9 Proven Tips for Securing Investment Property Loans

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Investment properties are a hot ticket for people who are looking to make safe investments and get tremendous returns.

Don’t believe us?

More than 5.6 million new homes are going to change hands in 2019. That’s the most new home buys of any year in over a decade.

There are more renters today than at any other point in the last half-century. That means if you’re buying to rent, you have no shortage of competitive tenants to fill your property with.

In today’s market, the problem isn’t how you’re going to make money from your real estate investments, the problem is how you can secure investment property loans so you can purchase those investments.

Therein lies the focus of this article.

No matter if you’re looking at applying for mortgage loans, fix and flip loans, or the like, here are 9 proven tips to raise your odds of getting approved for financing.

1. Save Up a Big Down Payment

The more money you put down on an investment property, the less money you’ll need to ask a lender to loan you. That means that you can vastly improve your odds of securing investment property loans by saving a little bit of money before seeking them out.

You’ll want to have at least 5% to put down on your home or 3.5% if you qualify for an FHA loan. Still, 3.5-5% of a home’s purchase price isn’t an attractive down payment to most lenders.

If you can come up with 20% you can avoid PMI and get funded with confidence.

2. Maintain Awesome Credit

Your credit score is one of the first things investment property loans will look at when deducing your eligibility.

Do you know what your credit score is? If not, you can leverage free services like Mint or Credit Karma to look yours up. You can also request a free credit report from major credit bureaus.

Learn more about requesting your credit report on the Federal Trade Commission website.

3. Take Care of Your Debts

If your income to debt ratio is bad, you’re going to have a lot of trouble getting investment property loans. To aid that ratio, all you have to do is start paying down your existing debt.

Remember, no lender wants to have to compete with other lenders when it comes to who you’re going to pay back first. The fewer people you’re indebted to, the more likely you’ll be able to secure the loan products you’re looking for.

4. Think Outside of the Big Bank Box

When people think about property investment loans, they think about walking into Wells Fargo and Bank of America. While you can certainly get loans from big banks, limiting yourself to them can reduce your chances of getting the loan product you’re looking for.

Check online to find online lenders who may be willing to fund your real estate investment. There are many small and large loan providers who operate strictly online and fund investments every day!

Just be wary of predatory terms and conditions.

5. Ask About Owner Financing

Given that banks have gotten more prudent about when to and when not to award loans, owner financing has become more popular. With owner financing, the person who is selling the home finances it directly to a buyer.

That means sellers get to collect any interest from the loan but they also retain liability if you were to default on payments.

Owner financing agreements are what you and a seller make of them so don’t be afraid to strike up a conversation and see what you can negotiate.

6. See if Credit Cards can Help

When conventional investment property loans fail, some turn to credit cards to help them bridge the gap in their funding needs. Some personal or even business credit cards offer high limits which can give you the extra 30K+ that you need to close a real estate deal.

Credit cards typically carry high-interest rates so be conscious of what you’ll owe on your card and the implications of that debt.

7. Opt for Peer-to-Peer Financing

There are online investment pools available where people like you can pitch real estate opportunities and get multiple investors to pool their resources in order to purchase a property.

Examples of these sites include Prosoper.com and Lendingclub.com.

Check out both of those sites to see if either feels like a good fit you and your investment ambitions.

8. Focus on Distressed Sales

Are you having trouble securing the financing you need to purchase a more expensive investment opportunity? If you are, consider looking at foreclosure or pre-foreclosure homes.

These properties are typically open to negotiation as banks are trying to get them off of their books as quickly as possible.

If you find the right distressed property, you could nab it at a low price which means easier financing and more return on your investment.

9. Try a 203K Loan

203K loans make for decent investment property loans for a few reasons. First, they’re backed by the FHA. Second, they include not only the amount of money you need to buy a home, but money to renovate it.

That makes it a favorite amongst fix and flippers.

Note that 203K loans come with a bevy of conditions. Some of those conditions require you to hold your property for a certain amount of time and reside in your property while you own it.

Be sure that conditions fit your investment strategy prior to funding your purchase with a 203K loan.

Tips for Securing Investment Property Loans – Wrap Up

There you have it! 9 proven tips that can help you secure investment property loans.

If you’re interested in leveraging short sale homes to bolster your investment portfolio, look no further than our content on Short Sale Blog to get the insight you need!

From information on identifying investment opportunities to funding your ambitions, our team of experts have the answers to all of your biggest questions!

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A Strategic Guide on How to Stop Foreclosure

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On average, one out of every 200 homes faces foreclosure. And every three months, 250,000 new families enter into the foreclosure process.

Don’t become a part of the statistic. A foreclosure isn’t only the loss of your home. It also affects your financial future. If you’re going through a foreclosure it can seem like you have no options, but luckily that’s not always the case.

Read below to discover eight strategies to stop foreclosure.

Talk With Your Lender

Talking with your lender or bank is the first step to stop foreclosure.

Most people think their lender doesn’t care if you lose your house or not. But this isn’t the truth. On average, lenders lose around $50,000 on each foreclosure. They are willing to work with you, but you need to start the communication.

Reach out and let them know you are struggling to make your monthly payments. Together, you can come up with a viable payment plan to get you back on track with your mortgage payments.

Try A Short Sale

A short sale is an often overlooked solution to stop foreclosure on your home.

Is your home worth less than you owe on your mortgage? A short sale allows you to sell your home at an amount below the mortgage balance. All you need is a qualified offer from a buyer.

To qualify for a short sale, you must meet the following requirements:

  • Unable to sell your home at a price that covers your remaining mortgage balance.
  • Your mortgage is near or at the default stage.
  • Unable to refinance your existing mortgage.
  • Submit a letter of hardship explaining why you can’t make mortgage payments.
  • You have no assets that could help with your situation, such as other real estates.

When your short sale is complete, your lender forgives the remaining mortgage balance.

Look For Refinance Options

Look at refinancing your current loan if you are facing foreclosure.

By refinancing, you will replace your current mortgage with a new mortgage. The new mortgage will come with a new lower interest rate. This could lead to a lower monthly payment.

To qualify for refinancing, lenders will look at the following:

  • A good credit score.
  • Equity in your home.
  • A good debt to income ratio. You should aim for your mortgage payment to be less than 28 percent of your income.

Refinancing works best if you look for options as soon as you have trouble making payments. A lender will be less likely to offer a new mortgage if they see a long history of missed payments.

Enter A Forbearance Agreement

A forbearance agreement is a temporary arrangement to delay foreclosure.

These are often granted if you are experiencing short-term financial difficulty. Some things that could qualify for a forbearance agreement include:

  • Sudden loss of a job.
  • A temporary illness that made it difficult to work.
  • Recovering from an injury.

The granting of a forbearance agreement and its terms depend on your lender. Often, the agreement will reduce or suspend your mortgage payments. You and your lender will agree upon a set amount of time for the reduction or suspension.

During this time, the lender agrees not to start the foreclosure process. At the end of the agreement, you return to paying your full mortgage payments. You are also responsible for paying any missed payments, interest, or taxes.

Bridge Your Income Gap

If you find yourself facing foreclosure, it’s time to increase your income. Bridging your income gap is challenging, but it helps you afford monthly payments.

Consider accepting a new job, or even a second job. Many people use side hustles to bring in extra income to their families. Wait tables on the weekends or drive for a ride-sharing company. If you’re determined to make more money there are countless opportunities.

If another job isn’t an option, try curring down on your expenses. Take a look at your budget and decided what is necessary and what you can live without. Cut your cable bill, stop eating out, carpool to work. There are many ways you can cut down your budget.

And if that still isn’t enough, you can sell some assets to help get ahead. Maybe you have an extra car, boat, or jewelry you can part with.

It may not be easy, but neither is losing your home to foreclosure.

Receive Professional Help

It’s important to remember that you’re not alone in this process. There are professionals trained in how to stop foreclosures.

There are HUD-approved housing counselors to help you avoid foreclosure. These trained professionals help you organize your finances and understand the law. They will also help you negotiate with your lender.

If you are facing foreclosure, look into the Making Home Affordable Program. This government program works to help you keep your home. They can help lower your interest rate, lower your loan principal, or extend the life of your loan.

The main goal of this program is to help you become financially stable.

Use a Deed in Lieu

Using a deed in lieu is another method that stops foreclosure. A deed in lieu is when you sign your home’s deed back over to your bank or lender.

A bank will agree to a deed in lieu in the following circumstances:

  • Your home has been on the market but you’re unable to secure a buyer.
  • You’ve tried all other options and foreclosure is imminent.
  • You can prove financial hardship.
  • You start the process and voluntarily sign the deed over.

While it releases you from financial obligations, it still impacts your credit history. It can stay on your credit report for seven years, making it hard to secure housing in the future.

Consider Filing For Bankruptcy

Still asking yourself how to stop a foreclosure at the last minute? If you’ve run out of other options, you can file for bankruptcy.

When you file for bankruptcy, it’s illegal for your lender to try to collect on outstanding debts. This allows you time to get your financials in order.

Your mortgage lender is then obligated to negotiate loan terms with you. Together you will come up with a repayment plan. You are still held responsible for your debts.

A bankruptcy will appear on your credit report for ten years. Bankruptcy is a last resort because it has long-lasting effects on your credit.

Need Help To Stop Foreclosure?

Now that you know more about the ways to stop foreclosure, you can move towards financial peace.

A short sale can be confusing but it is often the best solution. This allows you to sell your home and move on with your future.

Still unsure about your decision? Learn more about the differences between foreclosure and a short sale.