Buy A Foreclosure Home

by Brenda Puckett

The home buying process can be overwhelming for a first time home buyer, giving you the feeling that your financial destiny is rapidly spinning out of control. When it comes to real estate, most people don’t have a lot of experience and even less knowledge. Buying a foreclosure home can be even more confusing. The fact is, buying a home is actually a simple process. All you need to do is concentrate on the basics, and the following steps will fall together more easily.

1. You’ll want to get preapproved for a mortgage as early in the process as possible. This gives you more time to understand your mortgage and all the complicated paperwork involved. This also lets the seller know that you are serious about buying, and will normally work in your favor to give you a negotiating edge – which is especially handy if there are several others interested in purchasing the home. Getting preapproved will also save you a lot of time as well. If you can’t get approved for a loan, you shouldn’t waste your time going through the process until you have your mortgage problems solved.

2. Watch out for any prepayment penalty which might be included in the loan proposals you are given by your loan originator. Accepting a prepayment penalty may cause you to pay many thousands extra if you need to sell or refinance the home during the first two to three years. Even with credit problems, you can find many loan programs which do not include a prepayment penalty. If your mortgage banker proposes a loan which has a prepayment penalty, you should most likely turn it down and continue your loan search. One caveat here, though. If your credit is bad enough that you will have no chance of qualifying for a different loan for a couple of years, you might consider accepting a “soft” prepayment penalty. This penalty would only apply if you refinance the loan and not if you sell the property.

3. As mortgage rates fluctuate over the next years, you should also stay aware of good adjustable rate mortgages. I know that you have certainly read many horror stories about ARMs, but some include strict limits on adjustments and include easy refinancing terms. If you get a really good adjustable rate mortgage, you could save many thousands over a couple of years. For example, FHA adjustable rate mortgages have strict adjustment limits, absolutely no negative amortization (your loan balance only goes down and never up), and a super simple streamlined refinance process that doesn’t require requalifying if you have made your payments on time.

4. Before you purchase a home, you should always be aware of how much you can afford. You should always go over your budget and figure out how much money you can spend on a mortgage payment. If you manage your money intelligently and know your finances, this should take very little time at all. On the other hand, if you are not on top of your finances, this may take longer but you will be highly rewarded for the effort. Do not base your decision on whether or not you can afford a certain home based on whether the loan officer and real estate agent tell you that you qualify. They are able to qualify you for more than you can comfortably afford and both get paid more when you buy a more expensive home. They will not, however, help you with your payments later on.

5. Once you have your financial house in order, take the time to become familiar with home prices in the area. Become an expert. Do research online to find out what sellers are asking and getting. Be sure to check for foreclosure homes. We are experiencing a very distinct buyer’s market in real estate now. You should choose your first home more for its investment value than its dream home qualities. Do not ever pay list price. Expect to pay a minimum of 10% through 30% or more less than similar homes in the area have sold for. The greater the discount the better. This creates the greatest possible potential of avoiding the risks of buying in a down market, and the greatest odds of profiting when it is time to move up to a larger home. Never, ever, pay the full appraised value for a home and wait for inflation to build your equity. This was a losing strategy even during the housing boom. Inflation raises the value of all property. The home you hope to move up to will be getting more expensive due to inflation as well. Make your profit when you buy the home by getting a good deal right out of the gate.

The above are just a few basic tips and there are many other things you’ll need to know before you buy your very first house. The key is to educate yourself before you take action. Most first time homebuyers fail to operate from a position of strength. Many are paying the price for that in today’s market. Don’t let that scare you. If you concentrate on the learning the basics, you can control your destiny.

 

About the Author:

FHA loans are the best choice for first time homebuyers in Georgia who want to take advantage of todays declining real estate market.