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My fiancee and I have been frustrated for a quite a while in the search for our first home. By happenstance, our careers (she is a teacher and I am a federal employee) are about 80 miles apart (North-South) and the sensible halfway point for us in terms of commute is in one of the most expensive areas of New Jersey to live, Hunterdon County. We were hoping to find a small 2 bedroom ranch fixer upper within our price range, which is about $230,000. So far all of the homes we've looked at are either priced just out of our reach and the sellers laugh at our "highest and best" offer of $230K, or the ones within our range need extensive repairs (structural, septic systems, etc...).
Lately I've turned my attention to pre-foreclosures, which yield no shortage of shady looking "get rich quick" websites when searched for on Google, but there definitely must be something to it. I'm not looking to flip a home for quick profit, but rather to buy something that we can live in long term with mortgage payments we can afford. The way I understand it is this:
-A potential buyer searches for properties where the owner is behind on their payments via a paid list, etc...
-Hypothetically let's say the buyer finds a home whose FMV is $250,000. The buyer does research, finds no tax or other liens, etc...
-Now let's say the owner of the property owes $50,000 on the property and is behind on the mortgage and is unable to pay it back.
-At this point, the buyer can contact the owner, get them to agree to a home inspection/appraisal, and at that point hammer out a deal.
-Again, hypothetically, assuming that the home is appraising for $250K and that there are no major repairs needed, liens, etc...the buyer can offer the owner the amount owned on the remainder of the mortgage ($50K) plus some more money for them to find another place/get back on their feet (let's say another $50K)
-The buyer has just purchased a $250K home for $100K, which gives him $150K in equity?
Of course that's a very idealized and simplified version of the process, but am I understanding it correctly? If so I am going to aggressively pursue this option. I just want to know that I can do it with a conventional 30 year fixed mortgage. Am I right? If not, where I am mixing things up?
Hi Badfish - in the scenario you're describing, the loan must be assumable. FHA and VA loans are assumable. Here's a little more info from the HUD website:
He's not talking about an assumable mortgage, he's talking about a straight out purchase... "helping" someone get out of their financial situation. As in a straight purchase.
I don't know where you would find such a situation. In what you are describing (unless the figures being used are just so simplified) the owner would just put it on the market and sell it for the $100K which would be in effect $100K less than what it's worth.
Anyway, yes, you can do so with a conventional mortgage. You can do so with any mortgage you can qualify for.
Why don't you just rent?
I would contact a Realtor who works with short sales. In theory your scenario appears to be solid; however, the sellers situation is much more complicated and can get a great deal more complicated and frustrating on the way to closing. This is not say you will not be savvy enough to handle the problems that typically arise; however, do you have the time and patience?
Some short sales can be great deals, others are not. Your agent will have the necessary tools to help you determine if this is the right deal for you.
The scenario you outlined is a fairie tale scenario which won't be found. Anyone with that much equity in the home isn't going to walk away or get foreclosed upon. Most foreclosures are situations in which the seller owes more than the home will sell for.
But to answer your question, yes, you can get a conventional loan and buy any property, even foreclosures.
My fiancee and I have been frustrated for a quite a while in the search for our first home. By happenstance, our careers (she is a teacher and I am a federal employee) are about 80 miles apart (North-South) and the sensible halfway point for us in terms of commute is in one of the most expensive areas of New Jersey to live, Hunterdon County. We were hoping to find a small 2 bedroom ranch fixer upper within our price range, which is about $230,000. So far all of the homes we've looked at are either priced just out of our reach and the sellers laugh at our "highest and best" offer of $230K, or the ones within our range need extensive repairs (structural, septic systems, etc...).
Lately I've turned my attention to pre-foreclosures, which yield no shortage of shady looking "get rich quick" websites when searched for on Google, but there definitely must be something to it. I'm not looking to flip a home for quick profit, but rather to buy something that we can live in long term with mortgage payments we can afford. The way I understand it is this:
-A potential buyer searches for properties where the owner is behind on their payments via a paid list, etc...
-Hypothetically let's say the buyer finds a home whose FMV is $250,000. The buyer does research, finds no tax or other liens, etc...
-Now let's say the owner of the property owes $50,000 on the property and is behind on the mortgage and is unable to pay it back.
-At this point, the buyer can contact the owner, get them to agree to a home inspection/appraisal, and at that point hammer out a deal.
-Again, hypothetically, assuming that the home is appraising for $250K and that there are no major repairs needed, liens, etc...the buyer can offer the owner the amount owned on the remainder of the mortgage ($50K) plus some more money for them to find another place/get back on their feet (let's say another $50K)
-The buyer has just purchased a $250K home for $100K, which gives him $150K in equity?
Of course that's a very idealized and simplified version of the process, but am I understanding it correctly? If so I am going to aggressively pursue this option. I just want to know that I can do it with a conventional 30 year fixed mortgage. Am I right? If not, where I am mixing things up?
Rest assured, that on the very rare occasion someone gets into this situation, the house has already been snatched up by a Realtor or seasoned investor.
If they've got that much equity in the home, they could sell a $250,000 home for $150,000, and make a little money. You'd have to find an incredibly stupid seller to make that fly.
On pre-foreclosures, you're looking at homes that don't have too much equity in them. If a bank can take back a house with $150,000 of equity in it, they'll accelerate that note so fast it'll make your head spin. Banks aren't stupid.
Good thought, but it's not an idea a million people haven't come up with. Doesn't work like that.
The scenario you outlined is a fairie tale scenario which won't be found. Anyone with that much equity in the home isn't going to walk away or get foreclosed upon. Most foreclosures are situations in which the seller owes more than the home will sell for."
Steve
This statement is very on target in my experience of searching out foreclosure properties. I had posted several weeks ago that in the Phoenix area the foreclose properties were about $50 a foot higher than new homes.
They still are too high and I am not not even checking them out anymore. It has been a waste of my time to hunt for these type of properties. Not only are these houses too high, they also come without any warranty and seller statements and some are in pretty crummy condition.
There are a lot of companies making fortunes giving one and three day seminars to would be investors on how to get rich buying foreclosures.
I belong to the AZREIA association in Phoenix, and there are so many new people trying to jump into that market, and most of them are just going to spend a lot of money and find out they can't do it.
Most of the professionals who buy pre-foreclosures are paying the seller cash and getting the deed signed over to them. Some buy the property subject to, with no money, and turn the property to an investor without ever taking title.
It reminds me of the public investors that came out of the woodwork in 2005 hoping to get rich. That meant the top was near.
Does this group of investors jumping in mean it's a signal that we're near the bottom? That is a question, not an answer. In hindsight, we'll know.
However, I know you're not looking to invest so I was not referring to you.
You're looking to buy a home to live in. But as people have already mentioned, getting into pre-foreclosures is a specialized market and extremely difficult. You may be much better off working with a good realtor, and a bank, or a good mortgage broker and find an REO, or a short sale, or just a motivated seller.
austin-steve,
some people do loose there home's with them still having alot of equity, my home was appraised at 170,000 6 years ago and we owed 90,000 then my ex stared spending everything we had on internet *****'s in the uk, we had 3 business's befor i even realized what was going on everything was gone. he had just filed bankruptcy 250,000 over 150,00 his bills 100,00 company credit cards he maxed ect. he did all the books.and i did'nt even know untill my lawyer called to tell me. he hid everything very good but in the end the business's were gone, the house could'nt be saved though i tried, i got a job working 16 hrs a day in the winter shoveling snow and gave them all the money for the house but could'nt catch up. we were 10,000 behind and he had even gotten more credit cards so he could send her more money, he took all of ours and gave it to her also.motor home that was mine and paid off he got a loan on , gone , all the money i put into the bank gone to her, the trailor and 4 wheelers gone. no money left to put my fruniture in storage so i pack a few things and that was that. all i saved was my 4x4 quad cad truck. they did take his car.
long story short they sold my home(that was mine befor i put his name on it)we were together for 18 years, ) at auction for 34,000. sure did'nt do me any good i had no job , no money, nothing. so i was left to walk away and start a new life at 45.after having abreak down !!!!!!!!!! i have started over and i'm still struggling to make ends meet, but at least i don't live in the same state as him and yes for those of you that are wondering..........HE IS STILL ALIVE!!!!!! and lives with his brother and works at walmart and has nothing now either. all for someone on a computer screen.....
there is one happy ending to all of this...... the girl in the uk now has a new home and car and jewerly that i helped get and she's only 22. i do wish though i would have had a vioce in who i was going to give a better life to...i'm not trying to be crappy steve, just wanted you to know some times people don't have a choice.
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