Real Estate/Mortgage Questions (real estate market, foreclosure, 2nd mortgage)

[arkeuler]

We just moved back to the Twin Cities from the Phoenix area and will be in the market for a new house by the end of summer. Obviously, we have the advantage considering the state of the real estate market around town. But how low is too low to offer? For example, let's say you're interested in a house that's listed for $250k and has been on the market for 3 mos or more. Is it insulting to the seller to offer $200k to see if they'll bite? Not that I'm all that concerned about the sellers' feelings , but I'd rather not waste time with ridiculous offers that won't get any response.
Also, it's my opinion that putting $ down on a house isn't exactly worth it unless you're able to put down 20% to remove the need for PMI. Does anyone agree/disagree? Is it worth it to put down $5000 on a mortgage of $200k or more?
Thanks.

[golfgal]

It isn't really an option to not put money down on a house-lenders require something down and 2% probably isn't going to get you approved unless you can find someone that will do a 100% finance.

A house that has been on the market for around 3 months isn't all that unusual so low balling on that might not get you a response. You might be better off offering more but asking for closing cost help. If the sellers are in a hurry to sell closing costs are more negotiable. If they are not in a hurry they may come back at your price without closing costs.

If a house is listed at $250,000 and has been on the market for quite a while, I would offer at least $220,000 and go from there.

[autumngal]

If this house sold since it was built I would look up to see what the last selling prices were, figure out reasonable appreciation, and look at sold comps for that area and start my offers from there.

[sunsprit]

A realistic offer on your part should be based upon the fair market value of the property you're looking at.

While you hope that a seller has priced their property appropriately to the market, that's not always the case.

So, before you make an offer, get a FMV done for you ... either by a qualified agent (MAI, for example), or a CMA from a qualified party, or an appraiser. Remember, if you need financing, the lender will have an appraisal done to protect their interest. If you've agreed to an overmarket high price, you risk not getting a loan high enough to buy the place without bringing additional money to the closing.

If the seller is asking way over market, I don't care if the property has been on the market for ten seconds or three months. You, the buyer, is the one who is out the money for the long term if you pay way over the market.

While time on the market may affect a seller's motivation to sell, or financial need, there's a lot of properties listed by a seller because an agent told them they'd get a certain price. The tactic is essentially "buying a listing" ... it's easier to go back to a seller after having the listing contract and tell them the marketplace isn't responding to their price and they'll have to come down then it is to try to get a listing at a more realistic price to begin with.

You may also be up against a seller who is just "fishing" in the marketplace. If their place can sell for a given high price, then they can move on to what they'd like to have.

It's your money. Never be afraid to seek fair value for it. It a seller is offended that you are interested to buy but at a realistic price, then that's too bad ... better for you to walk away from a bad deal than to have the consequences of paying too much. Business is business ... if a house isn't worth $250,000, offer what it's worth at that time. If it's worth $250,000, then assume the seller knows it and offer accordingly to your desire to have the house.

Personally, I prefer to pay cash for a home. Yes, I know that a lot of more savvy investors than me will justify having the freed up money to go invest somewhere else, but I like the freedom of knowing what I own, I own. I prefer to use my money for my interest than to have creditors telling me what and how I'm going to live. Staying debt free is a real freedom for me.

[SlyFrog]

Originally Posted by sunsprit

Staying debt free is a real freedom for me.

Logical analysis tells the opposite is true.

As we know, freedom's just another word for nothing left to lose.

Having equity equals having something left to lose.

Therefore, having no debt and all equity is the opposite of freedom.

Having all debt and no equity equals freedom.

QED.

[TimtheGuy]

Also, it's my opinion that putting $ down on a house isn't exactly worth it unless you're able to put down 20% to remove the need for PMI. Does anyone agree/disagree? Is it worth it to put down $5000 on a mortgage of $200k or more?

There are some good 100% financing options out there, especially if you are a 1st time homebuyer. There are many options that include:

-single loan at 100% with PMI
-single loan at 100% with reduced PMI (income limits)
-single loan at 100% with no PMI (generally requires 680+ credit scores)
-80/20 (80% 1st mortgage & 20% 2nd mortgage)
-VA 100% loan (qualified veterans only)
-RD 100% loan (must purchase in a rural area)
-FHA 97.75% loan

You should realize, however, that every 5% increment you put down on the purchase equates to a better deal. That is to say an 85% loan is better priced than a 90% loan. A 90% loan is better priced than a 95% loan. A 95% loan is better priced than a 100% loan. And in some cases a 97% loan is priced better than a 100% loan.

These are general rules. You will need to get your information to a loan office to get more specific on what would suit you and your family best. If you would like more specific info, feel free to PM me on this site.

As far as your offer price goes...that is not my area of expertise. However, I will let you know that I have been seeing some good to EXCELLENT deals coming across my desk with reference to appraised value and/or to what said property sold for 2 years ago. I have closed a couple of foreclosure properties that were outright steals IMO.

Good Luck!