Many people have a very negative image of foreclosure properties. They see them as rundown and undesirable properties. While this is partially true, it is only part of the picture. The truth is that foreclosed homes are often in the best of situations. They need a little upselling and fixing. They may be run down and need some rehab work but sometimes, the internal repairs or renovations need to be more than just cosmetic to make them attractive and livable. Not all repairs require a big budget, though. You need to think of the repairs you are doing as a fresh coat of paint. It may not seem much but it does make a big difference.
You need to be realistic. You won't be able to fix every problem right away. Rather, you should focus on the most important problems. If you are buying a property for resale you may encounter many more problems. The repairs will likely be significantly greater.
Many of the foreclosed properties sold at auctions need major repairs. Many of the foreclosed properties sold via Real Estate agents need cosmetic fixes (a new roof, new flooring, paint job, etc.). Many of the foreclosed properties sold via the public auction may need major rehab or reparation of structural damage. These two types of auctions have different expectations when it comes to repairs.
If you are buying directly from the lender and they want a fast sale and you are focused on a fast sale, you may want avoid major repairs. These properties will be sold fast in a fast sale setting. You want to get them in the market within 1-3 days. The lenders want them on the market quickly, even at a reduced price. This creates a huge mismatch for the two types of auctions.
If you are buying foreclosed, the focus is on repair and renovation. These are properties that need extensive repairs. It may take a little longer to get the repairs done. These are properties that are sold via real estate agents who need quality in order to move quickly. They can afford to take longer and have the funds to do the repair in stages. In these cases you may want to ask the client to split the repair costs. This may give you some time to get your internal money and funds in place. The key is to be sure you are ready and able to take over when the lender takes over the property.
The key is to be sure you have your internal money and funds in place before the foreclosure sale. If you don't have your internal money and funds in place when the foreclosure sale happens, you are going to have a bad time. The real estate agent you hired to sell the foreclosed will need to move quickly. If they are waiting for funds, they may not get the house. The lender will wait even if we need the repairs completed. They will take them over once we have the funds.
Remember that we need funds for the repairs.
What should you do if you don't have funds?
1. Don't give up. You have several options. The lenders will want to close as quickly as possible after we close on the rehab. This makes us want to move very quickly. This makes us want to move very quickly.
2. Be sure you have the funds for the repairs. You can always ask your client to split the cost of the repairs.
3. If all else fails, file a contingency against the loan. This means you will ask the lender to take the losses.
What should you do if you do have external money?
1. Don't fall in love with another property. There may be a possibility that your loan has been modified and you can stay in your new purchase. If this is the case, then you have the ability to stay and buy another property. The lender may have taken a larger mortgage. We'll need to find out if your client has the ability to buy another property. If this is the case, then you may get to stay in this purchase.
2. Don't fall in love with another property. Don't buy another home property. You may be getting into an adjustable rate. Don't take the chance.
3. Don't buy anything else until your internal money and funds are in place.
You have several options.
If you do have external funds, you'll have to sign a loan contract. When this is done, an escrow company will close on the deal. Your client must pay a certain percentage of the sales price to us, and your client, the seller, must pay the rest to us. The escrow company will send you a 1099 for the full purchase price on the property. Then we'll need a certificate of occupancy from the property.
The key to buying a foreclosure is to have the funds in place. Your client must have an approved FHA loan as well as a mortgage. We have to have approval from the lender. This means that there are no other buyers for the property.
Once we have the funds in place, we'll send you the 10909. The escrow will close on the day the 10909 is sent to us. Your client will also have to have a 1099 from the end of the prior year. If the escrow closes on time, then the property has been sold and you can take possession. If it fails to close on time, you'll need to do a short sale. We'll need a $0 down payment on the home. The closing costs and attorneys fees will be your client's responsibility.
I can't stress enough the importance of having internal funds. There are many people that have attempted to buy a foreclosure and failed. You need to know that you are not going to get any help from anybody.