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.

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8 Must-Know Tips for Homeowners to Avoid Foreclosure

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If you find yourself in the unfortunate circumstance of facing a foreclosure, you’re scared right now.

You probably purchased a home with a variable interest rate a couple years ago or needed to refinance to take care of expenses, and now you’re afraid that you won’t be able to make your payments anymore.

Unfortunately, many homeowners are suffering from the same burden. They fell victim to variable subprime mortgages that had interest rates that keep rising.

The good news is, we have been recovering from those loans collectively as a nation and there are now many different supports in place to help keep you in your home.

But unfortunately, there are also some scam artists out there that take advantage of people like yourself. Learn how to avoid foreclosure with this helpful article and how to recognize scams when you come across them.

1. Don’t Bury Your Head in the Sand

With so many people out there looking desperately for mortgage relief, many solutions are now available. The government offers options and lenders also have plans in place to help their customers stay in their homes.

Don’t just ignore the problem, there are options out there. You should open and respond to everything you get in the main from your lender. If you just let things get worse, then it will be more difficult for your lender to work with you.

2. Contact Your Lender and Let Them Know What’s Going On

Your lender does not want to have your house. They want your money. That means that if you contact them early enough, they will do what they can to help you through a financially trying time.

Before you try anything else, give your bank a call and find out what kind of assistance they have available. Be honest with them about your situation and try to reach a resolution that can keep your family in its home.

When you call your lender, be prepared with all of your account information and transaction history. You want to have your facts together so you can present your case well.

It’s a good idea to write a short summary of the financial hardships you are facing before you place your phone call, that way you won’t get flustered on the phone dealing with such an emotional process.

3. Know Your Rights

Depending on what state you live in, and what your original loan says, there are a variety of different things that can happen if you fail to make your mortgage payments on time. Check out your state’s government housing website for more details.

There you will find information like how much notification your lender has to give you before they can foreclose on your property or evict you. With this knowledge, you will know exactly what path lies ahead and can plan how to avoid going down it.

4. Consider a Short Sale

If you’ve never heard of a short sale, its the term for selling your house for an amount that is less than the amount that you owe on it. That means that you would have to eat the difference.

A short sale is a good idea because you won’t have to make your mortgage payments during the process, which can allow you to get to work on repairing your finances more quickly.

It also means that you will be in a better place to get a house the next time you try. After a short sale, you can buy a house in two years, where with a foreclosure, it takes five to seven years.

5. Contact a Counselor

Predatory lending practices have been such an issue for so many people that the Housing and Urban Development department of the United States government set up a free hotline for advice. It’s called the Hope Hotline – (888)995-HOPE.

6. Reprioritize Your Spending

Having a household budget will help you figure out where you can find more money to put towards your mortgage.

Take the time to break down your spending to a weekly basis so that you can see exactly where it’s going and redirect any available funds.

7. Avoid Foreclosure Prevention Companies

Since so many people are affected by predatory lending processes, there are some businesses that have sprung up out there hoping to take advantage of people in their hour of desperation.

You’ll know these companies because they will make it seem like they can solve your problem overnight. Make sure you do your due diligence and realize if it sounds too good to be true, it probably is.

8. Get Proper Legal Advice

Many people were drawn into the housing market by attractive interest rates that would go up over time. Advocates for fair housing believe that many of these homeowners ended up with loans they wouldn’t be able to afford in the future.

Although it may have been nice to live in your home for the past few years, someone should have advised you to take out a smaller loan, knowing that eventually, the interest rates would rise.

Now that you have fallen victim, you need to be careful not to make any more mistakes. Get all the facts and information out there so that you can make the most informed decision for your family.

This article is a great place to start, but you should also consult the FDIC’s resources. They have information available on how distressed homeowners can take the next step for getting into a better payment situation using government programs.

How to Avoid Foreclosure

Now that you know how to avoid foreclosure, you know how to make the best choice for your family.

To learn more about short sales and how to take control of your mortgage, check out our blog today.

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Common Real Estate Investment Mistakes That Lead to Foreclosure

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U.S. foreclosure filings hit a 12 year low in 2017. Nevertheless, 676,535 homeowners lost their homes due to foreclosure: a painful experience to be sure.

But what if you could avoid going down the road towards foreclosure? Who wouldn’t want to avoid that scenario?

It’s not possible to avoid life-changing events that could alter your financial situation. But it is possible to significantly reduce the likelihood you’ll ever be faced with such dire consequences.

How do you do that?

You simply need to avoid making common real estate investment mistakes that often derail homeowners.

Read on as we examine the most important mortgage mistakes to be aware of before you buy and during your repayment period.

Steer Clear of These Home Loan Mistakes Before You Buy

The best way to avoid foreclosure is to prevent yourself from ending up in such an unenviable position.

Be careful not to commit these mistakes before signing any loan documents.

1. Buying Too Much House

One of the biggest mistakes you can make is to purchase a home you can not comfortably afford.

It is an easy mistake to make. Contrary to what you may think, most banks will lend you more than you need.

Banks determine your loan amount based on your gross income before taxes. They don’t consider your monthly expenses such as insurance and utilities.

Signing a loan for more than you can afford sets you up to be “house poor.” You’ll have no wiggle room in the event of an emergency, such as the loss of a job.

Simply put, it will be too easy to fall behind and risk foreclosure.

What to do instead:

Experts recommend spending no more than 28% of your income on your home. This figure includes the principal and interest on your loan payment plus property taxes and insurance coverage.

Create a realistic budget for life in your new home, making sure you can be comfortable even if you encounter a significant change.

2. Not Getting a Fixed Loan

With the interest rate of fixed-rate loans on the rise, the attraction to adjustable-rate mortgages (ARMs) is understandable.

An ARM may be tempting now, but it will eventually reset. And when it does, the interest rate will likely be higher and you may not be able to refinance at that time.

The new payment may be too expensive and, depending on the housing market, it could be tough to sell your home.

It’s easy to see how this situation can quickly escalate to missed payments and even foreclosure.

What to do instead:

Don’t be penny wise and pound foolish. Stick to a fixed-rate loan and sleep well at night.

The only time an ARM makes sense is if you plan on moving within 5 years or so.

There are many loan structures for real estate financing, but your best bet is almost always to seek the security of a fixed loan.

3. Underestimating Home Ownership Costs

Don’t make the mistake of only factoring your mortgage into your budget.

You’re going to incur a number of home-related expenses such as:

  • Property tax – The tax man always cometh, and home taxes can cost you thousands of dollars each year.
  • Homeowners association (HOA) – If your new neighborhood has an HOA, you’ll be required to pay dues. These monthly fees can range from $50 to several hundred dollars.
  • Insurance – You will need to purchase home insurance, and you may be required to carry mortgage insurance and even possibly hazard insurance.
  • Home costs – You won’t be renting anymore, so you will have to pay the utilities and the inherent costs of maintaining your new home.

What to do instead:

Before you sign on the dotted line, know what your mortgage payment will be, including the interest. Factor in all the costs of home ownership in your monthly budget and make sure you can be financially comfortable.

Mortgage Mistakes to Avoid During the Repayment Period

If you’re already living in the home and you still owe your lender, steer clear of these common errors to avoid foreclosure.

1. Ignoring Your Lender

If you’ve missed a payment, it’s easy to avoid communication with your lender.

But that’s the biggest mistake you can make, and it often leads to foreclosure.

What to do instead:

Remember, you have 120 days after your first missed payment before a bank can foreclose on you.

Maximize that time by contacting your lender and seeking options, such as payment arrangments or loan modification programs.

You may even be able to avoid foreclosure through a short sale of your home.

The sooner you act, the better.

2. Not Taking Advantage of Government Options

When you ignore your lender, you don’t have the option of enrolling in loan modification programs.

These programs modify the terms of your deed of trust contract, resulting in lower monthly payments.

For example, the Home Affordable Modification Program (HAMP) gives relief to struggling homeowners.

Many states have their own modification programs designed to keep you in your homes with lower monthly programs.

What to do instead:

Remember this: Your lender is prohibited by law from foreclosing on your home if you are enrolled in a government-sponsored loan modification program.

Consult a U.S. Department of Housing and Urban Development (HUD) approved counselor to examine your options and create a plan-of-action.

3. Falling Prey to Scams

Your loss can be a scammer’s gain if you’re not careful. Unfortunately, many people will line up to take advantage of you if you face the possibility of foreclosure.

Be mindful and avoid the following scams:

1. Never Sign Over Your Deed

Some scammers will state they can take care of the problem if the deed is in their name.

This is a good way to lose your home. Don’t fall for it.

Signing over the deed will not eliminate your loan debt. It simply removes your legal right to your house.

2. Beware of Exorbitant or Upfront Fees

Don’t listen to anyone who wants to charge you to explain your options.

You can always get free help from HUD-approved housing counselors.

3. Stop When You Hear the Word “Guaranteed”

No one can guarantee you they can resolve your foreclosure. Any resolution is most likely predicated on your lender’s approval.

Be very skeptical of anyone guaranteeing to get your loan modified or resolve your foreclosure.

The Bottom Line About Real Estate Investment Mistakes

You can significantly increase your odds of avoiding foreclosure simply by steering clear of common real estate investment mistakes.

Before you buy your home, make a realistic budget allowing for every expense you will incur in your new home.

And if you are facing foreclosure, seek help from qualified and legitimate sources.

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7 Tips For Funding Your First Real Estate Investment

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I’m not going to pretend that the average person reading this is a millionaire, or is Donald Trump himself. The reality is that real estate investment is an expensive endeavor.

There are so many different types of funding available, it can be tricky to know where to even start.

Despite the benefits that investing can have, some people are still a little cautious about taking that dive.

That’s why I’m going to give you seven useful funding tips on real estate investment financing for your first property. That way, you’ll be able to take the plunge with a little more confidence.

1) FHA Loans

Otherwise known as the Federal Housing Administration, this is a loan that is insured by the FHA and backed by the US government.

Because of this, FHA loans usually have lower interest rates and are more attractive to first-time buyers.

Not only that, but down payments are only 3.5% as opposed to 20%. This means a property that’s worth $250,000 would only require a deposit of around $8,750 (which is not a lot when you think about it).

This definitely makes FHA loans a lot more appealing.

2) Hard Money Lending

As there are different types of loans for real estate investment, I’m going to try and look at a couple of different ones.

If FHA is not what you’re looking for, then a hard money loan could be what you need.

This is a loan that is determined by the value of the property itself. They are funded by private businesses and are often used by investors looking to renovate a property.

It’s worth noting that hard money loans are usually short-term (6-36 months) and are set at a higher rate (8% minimum), so it’s wise to do a bit of research beforehand.

3) Private Investment

When it comes to real estate funding, sometimes you don’t want to go through a loan scheme or a bank. In which case, private investment may be what’s right for you.

These work similar to other lending programs in that you are still borrowing money at a specific interest rate.

The difference here is that a private investor is an individual rather than a professional lender.

They are helping you to invest in your property on the understanding that they can foreclose and seize it if the mortgage isn’t paid.

The good thing about private investment is that there are no hard and fast rules about borrowing and terms can be anywhere from six months to thirty years.

This gives you a good amount of leeway.

4) Owner Financing

You may also hear this being referred to as seller financing.

Essentially, the property owner and the investor looking to purchase (i.e. you) strike up a mutual agreement.

This is where the owner of said property agrees to help with funding. The new buyer will then make payments to the owner instead of a bank.

This is a fantastic route to go down to cut down on fees and upfront costs.

The only complication to this type of real estate investment is the owner needs to actually own the property itself and cannot already have an outstanding mortgage.

Other than that, owner financing can help speed up the overall transaction and also create a professional one-on-one relationship between seller and buyer.

5) Conventional Mortgage

This one needs to be mentioned as it’s still a useful path to real estate funding.

A conventional mortgage is probably the most obvious type of financing that most would think of.

By going down this route, first-time buyers will have to put a down payment on a property (usually 20%) before they can borrow.

It can often be the most expensive form of financing. However, because of its popularity, interest rates are usually quite low.

Buyers will also need to undergo a credit score check (with a minimum of 680) and have proof of income.

The US Bank website does have a handy mortgage calculator to help you get started.

6) Family and Friends

Of course, you don’t have to look into any type of conventional loan or private investment scheme. You can always ask friends and family for help.

This doesn’t necessarily mean badgering the people you know for money.

You can actually combine this with another financing option, such as an FHA loan.

By doing so, you can pool resources together from multiple people to help reduce the initial investment fee. This helps keep costs down at the beginning, but doesn’t pressure one family member or friend into lending a large sum of their own money.

Having said that, if you do happen to know someone who you think can lend you what you need, there’s no harm in striking up a conversation with them about it.

No one said it was an impossible route!

7) Your Own Money

Even in tough economies, you’d be surprised how many people can actually save up enough money for a real estate purchase.

In fact, in 2012, around a quarter of all investors were able to fund using their own money.

For many people, this may seem like the most difficult option as it can require years of financial saving beforehand. However, it is by far the easiest way to invest in property.

You may hear people refer to this as using ‘all cash’. The reality is – especially in this day and age – a transaction of this magnitude is unlikely to be done with real, cold, hard cash.

However, you should still consider other options if you wish. Just because you have the cash doesn’t mean you have to use it.

Final Thoughts on Real Estate Investment

I’ve shown you various real estate investment paths that I think are the best. But there are probably more that you can explore yourself.

The best piece of advice I can give is to make sure you do a lot of homework before you decide.

This is a huge commitment, especially if you’re a first-time buyer. One thing you should have on your side is knowledge; knowledge of which method is going to be the best for you.

If you would like more information on real estate investor funding, you can check out more blog posts here.

buying a short sale home

Pros and Cons of Buying a Short Sale Home

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Short sales are becoming more and more common. Why is this fact true?

Many people bought homes at the height of the housing market. They leaped at the chance to have a zero-down policy and a beautiful home, too. So when the prices of houses went down faster than they came up, people were stuck with a home they couldn’t afford.

Short sales happen if both the homeowner and the bank agree that it would be best. To avoid foreclosure, many look to a short sale instead. This is a “cut your losses” compromise that allows both parties to get away as free as possible.

The upside? More people are considering buying a short sale home at a major discount.

Like anything, there are pros and cons to this method of obtaining a house. This article will lay out both sides so you can make an informed decision.

Advantages and Disadvantages of Buying a Short Sale Home

Buying a short sale home may not be for you.

But maybe it is!

Let’s review what purchasing this type of home entails. Then we’ll get the pros and cons in order.

What Is a Short Sale Home?

A short sale is when a property is sold for less than the balance that remains on the mortgage. This occurs to avoid foreclosure, which is costly for the bank and your credit report. Foreclosed homes get bought by the bank, and it’s not an inexpensive process.

Buying a short sale is very similar to buying a regular home for sale. The main difference between the two is the addition of a third party or escrow. This third-party lender has to approve or disapprove of any offers and negotiations.

Short sales typically occur when the homeowner can no longer afford to make payments. This can be due to personal or financial reasons. Many people saw this coming after the 2008 housing market crash. It turned 5% more of the population into renters.

2008 is in the past, and the market has been looking good for a solid decade with no hints of crashing.

Are you still in the buying market? Here’s what you need to consider with a short sale.

What Are the Pros of a Short Sale?

There are many advantages to this process:

  • Potential to get a great deal on price
  • Fewer people are looking into short sales, meaning more opportunity for you
  • You avoid the pitfalls of buying a foreclosure
  • Tenets usually maintain the space until moving time. This doesn’t happen as often with foreclosures

If you see a home that you love, don’t you want to live in it? Short sale homes should be no different. Find a home you love and go after it.

After all, it’s much better than considering a foreclosure. Foreclosures come with a laundry list of disadvantages:

  • They’re not usually located in a prime neighborhood or area
  • You have to buy the home “as is,” which means that once you’ve purchased it, the problems are yours, too
  • The prices of foreclosed homes are harder to negotiate. You’re working with a bank that needs to make its money back

Go look at a short sale today, and chances are it’s in a nicer area than a foreclosure would be. Most people who sell their homes on short sale bought them with good intentions.

What Are the Cons of a Short Sale?

There are some unfortunate aspects involved in purchasing a short sale home. We emphasize that the biggest issue with short sales is the time it takes for approval. And even then, approval is not always a guarantee.

Are you willing to take the risk? Here are other things you’ll have to gamble:

  • A lender has to approve of the short sale. Without their approval, there’s no done deal
  • It may come at a competitive price if the owners are trying to squeeze out as much as possible
  • Once again, the wait time can be longer than that of a regular home sale
  • There may be extra costs in the repair of the home

The best way to avoid some of these pitfalls is to get a look at the home. Does it need extensive repairs? If you don’t have the extra cash for renovation, you may need to look elsewhere.

If you’re able to look inside and determine the cost is worth the effort, then you’ve got an easier decision to make. This isn’t always possible. Once again, risk comes down to a key player in this decision.

Is This the Right Decision for You?

We hope this guide led you to that answer.

If you’re not in the market for an immediate move, then a short sale may be right for you. Got a place to stay while you wait for the process to wrap up? Then you’re good.

If you’re not afraid of a little work and time, then buying a short sale home is right up your alley.

Do you need to move right away? Then you might want to consider something else. A short sale has the potential to be a long process.

If you don’t have the time or the patience to wait, then it’s not for you.

A short sale comes with many benefits if you’re willing to put in the effort. It requires the same love as your average home up for sale.

Are you in the market? Check out our short sale blog for great information!

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10 Tips for How to Avoid Foreclosure

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Right now in the United States, there are over 600,000 properties that are in a state of foreclosure.

Foreclosures can mean much more than a loss of property. They can have lingering effects on your future, your credit history, and your daily life.

Even though your phone won’t stop ringing and the bills won’t stop coming, it doesn’t mean this is the end.

Here are ten tips on how to avoid foreclosure.

1. Consider a Short Sale

A short sale is a way to recoup the financial loss by selling your home below market value. Securing a buyer relieves some of the financial burdens and helps to save your credit.

This is the option for homeowners facing the near threat of foreclosure. In order to complete a short sale, you must be unable to refinance your mortgage and unable to sell your house at a price that would cover the mortgage.

Once a short sale is complete, your mortgage dealer forgives any remaining debt. Not all properties qualify for a short sale, so it’s important to talk with your lender.

2. Take Advantage of the Making Home Affordable Program

The Making Home Affordable program offers mortgage relief to help those avoiding foreclosure.

This federal program allows eligible homeowners the opportunity to reduce your monthly mortgage payments and explore any other available options. Options can include:

  • Lowering your interest rate
  • Extending the life of your loan
  • Lowering the loan principal

The end goal is to reach a solution that can be sustainable for you in the long-run.

3. Refinance Your Loan for Lower Payments

Refinancing your loans is one of the many ways to prevent foreclosure. The earlier you act, the better chance you have of refinancing.

Refinancing replaces your current mortgage with a new mortgage. The new mortgage will come with new terms, interest rates, and monthly payments. Your lender will look at your credit score and the ability to meet your new payments when granting a new loan.

Each loan is different, so it’s important you find the one that’s right for you.

4. Get in Contact With Your Lender

Contacting your lender can be a viable option for stopping foreclosure.

Opening the doors of communication lets your lender know you are willing to put in the effort to stop the foreclosure process. If you have trouble getting in contact with your lender, there are resources to help.

During this process, it’s important to keep track of all correspondence sent to you by your lender and document any phone calls. This will help you stay organized and be ready to take advantage of any opportunities that come your way.

5. Talk With a HUD-Approved Housing Counselor

Get in touch with a housing counselor to help you navigate all your options. These trained professionals work with people like you every day and understand the ins and outs of foreclosure.

Foreclosure prevention services are available in every state and are available free of charge. The counselor can help you understand the law, organize your finances, and represent you in any negotiations with your lender.

6. Sell Your Assets

Selling your assets can be used to help get caught up with mortgage payments. This could include selling the second car, parting ways with a few family heirlooms, or cashing out a retirement plan.

Saying goodbye to these assets can be hard, but if used appropriately may be a great way to avoid foreclosure. You can always buy back possessions after your finances are back in order.

7. Create a Forbearance Agreement

Have you experienced a job loss or a sudden illness? Are your financial struggles a temporary situation? If so, forbearance might be the right option for you.

A forbearance agreement involves your lender agreeing to lower or stop mortgage payments for a short period of time. This allows you some time to get back on your feet to help with stopping foreclosure.

You must resume full payment at the end of the forbearance period. You also must pay any additional amount needed to be current on missed payments, which includes principal, interest, taxes, and insurance.

8. Consider a Deed in Lieu

A deed in lieu transfers ownership of the home in exchange for a release of your mortgage obligation. This immediately releases you of any obligations associated with the loan.

There are different options available with a deed in lieu that involve you leaving the home immediately, staying in the home for a few months without paying rent, or leasing the home for up to a year.

A deed in lieu can appear on your credit history for up to seven years.

9. Bridge Your Income Gap

While finding a new, high-earning career may not be the answer, now is a good time to tighten the purse strings.

Cut back on things around the house you don’t need. Try getting rid of cable, shopping at discount stores, packing your lunches, or picking up odd jobs around your neighborhood. Any extra money can be spent to help get you back on track with your mortgage payments.

10. File For Bankruptcy

Considering bankruptcy as a way to avoid foreclosure should be treated as a last resort. Bankruptcy can lead to the loss of other assets besides your home and will appear on your credit history for up to 10 years.

When you file bankruptcy, collectors are forbidden by law from collecting on outstanding debts including your mortgage. Bankruptcy will allow you more time to get your finances together. Your mortgage company will be required to create a reasonable repayment solution with you, which could help you save your home.

Need More Information On How To Avoid Foreclosure?

Make sure you do the research to figure out what option works best with your situation. Our team at Short Sell Blog will help provide you with up to date, well-researched information on how to avoid foreclosure and get on with your life.

Never hesitate to contact us for help when it comes to your home and foreclosure.