First Time Home Buyer

Currently there are a vast amount of foreclosed homes on the market and there are a lot of programs for the first time home buyer that assists them in purchasing these foreclosed homes. There are a few cautions that should be made by any buyer who wishes to purchase a foreclosed home; cautions that may not be as necessary for other homes. Before purchasing a home most buyers will be provided with a written report from an independent housing inspector that has thoroughly evaluated the house. The purchase and sales contract must first contain an ‘inspection contingency’ with requires the seller to inform the buyer of any problems with the house within a specified time. Should problems be found the contract is either voided with the earnest money deposit being returned, the seller can agree to make the repairs, or he can provide cash settlement for the buyer to perform the repairs. Additionally, before the inspection takes place the buyer must insist that all utilities be in working order to allow for a full inspection.

Many states have certain ‘seller disclosure’ requirements to protect the buyer from purchasing a home that is not in good order. These requirements are similar to the inspection contingencies for home buying. The foreclosed home often does not have the same regulations or requirements leaving the buyer unprotected. Certainly a foreclosed home is often sold for bargain prices; however, some may become a money pit requiring more repairs and investments than the home is worth.

In most cases the utilities of a foreclosed home has been shut off and it is then uncertain, even by the bank that foreclosed, if the plumbing and heating systems are in working order or even if the foundation is faulty or not. Banks selling foreclosed homes are not normally required legally to provide a disclosure stating the home is in good working order. Neither are they required to perform inspections if it is not specifically requested of the home buyer.

Since many of the foreclosed homes on the market today are being targeted to first time home buyers who are inexperienced in home buying it is more important than ever to educate yourselves. With the number of foreclosed homes on the market many of them are sitting empty for a length of time. Additionally many of the previous home owners stopped performing the necessary maintenance and repairs on the home before it was foreclosed. Without inspections purchasing a foreclosed home is a risk; often a risk that cannot be afforded by the first time home buyer.

By stipulating that a full inspection of the property must be made before escrow takes place a home buyer can be protected. All home buyers have a right to a pre-settlement inspection that is added into the sales contract. This final inspection should take place the morning of settlement during the day when everything inside and outside the house can clearly be seen. Should the home fail the inspection the home buyer is not required to close on the home possibly saving themselves the headache and heartache of a money pit.

RealtyTrac has just reported today that foreclosures up up 121% year-over-year. Here is part of their press release that was just issued:

“IRVINE, Calif., July 25 /PRNewswire/ — RealtyTrac(R), the leading online marketplace for foreclosure properties, today released its Q2 2008 U.S. Foreclosure Market Report(TM), which shows foreclosure filings were reported on 739,714 U.S. properties during the second quarter, a nearly 14 percent increase from the previous quarter and a 121 percent increase from the second quarter of 2007. The report also shows that one in every 171 U.S. households received a foreclosure filing during the quarter.

RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1.5 million properties from over 2,200 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.

“Although much of the fallout from foreclosures is being driven by rampant activity in a few states, such as Nevada, California, Florida, Ohio, Arizona and Michigan, most areas of the country are seeing at least some increase in foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac. “Forty-eight of 50 states and 95 out of the nation’s 100 largest metro areas experienced year-over-year increases in foreclosure activity in the second quarter.

“Bank repossessions, or REOs, accounted for 30 percent of total foreclosure activity in the second quarter, up from 24 percent of the total in the first quarter,” Saccacio continued. “This shift in the distribution of activity indicates that there is a progression toward purging the problem loans out of the system — at which point the housing market can regain some sense of normalcy. Of course if another surge in defaults occurs, which could well happen later this year, it would refill the foreclosure pipeline and prolong the recovery.”

Nevada, California, Arizona post top state foreclosure rates

One in every 43 Nevada households received a foreclosure filing during the second quarter, the highest foreclosure rate among the states and nearly four times the national average. Foreclosure filings were reported on 24,657 Nevada properties during the quarter, up 26 percent from the previous quarter and up 147 percent from the first quarter of 2007. ”

What does this mean for the first time home buyer? Two things. First, the number or bank owned foreclosures is rapidly increasing. This means that housing prices will continue to come down due to an excess of inventory.

Second, it means that first time home buyers are in a better position to negotiate even lower prices for those houses on the market that are listed the traditional way and are not part of a foreclosure.

Given enough time, if interest rates remain relatively stable (that’s a really big IF considering how much money is being printed to bail out every multi-billion dollar failure that comes along), eventually first time home buyers will be able to afford entry level homes again.

Talking to many people today they are looking forward to becoming a first time home owner and with the prices of homes sinking rapidly they think it is a great time to buy. Homes that would previously be far out of reach are now becoming more affordable, to the excitement of the potential first time home buyer. Unfortunately, according to several reports, mortgage insurers have been upping their standards in the United States. What this means for the first time home buyer is they have to be at the top of the bar that is raised to obtain the mortgage. Mortgage insures are defining an ever increasing number of markets as declining. In these areas that they list as declining they are requiring a higher down payment as well as higher premiums. This means that the homes that were thought to now be affordable are still out of reach for the first time home buyer. The buyer will have to have a substantial down payment and in the declining economy saving 5 to 15 thousand dollars for a down payment is out of the question.

The market that seems so appealing to the first time home buyer and others hoping to cash in on the floor dropping out of the housing market may not be as profitable as once thought. The national home price index fell about 16% from its peak in the second quarter of 2006 and in some markets houses are selling for 50% less than a year ago. They; however, are not being sold to many first time home buyers but instead to developers hoping to turn a profit.

Additionally there is a surplus of bank owned forecloses today making prices fall even farther. Between the foreclosures and other homes on the market there are plenty of affordable homes to choose from. If only the tightened mortgage standards would allow people, including the first time home buyer to clear out the inventory. There are ways of obtaining a substantial down payment and the first time home buyer with control of his credit score and shows reliability and responsibility will be able to cash in on the falling house prices and afford the unaffordable dream home. With private buyer assistance programs, gift money from family, savings over time and the sale of high dollar assets even the first time home buyer will be able to meet the heightened lending standards of the mortgage insurers.

Business is still business and companies are still in to turn a profit. Making sure you are at the top of the class will ensure you obtaining that mortgage and moving into the home you have dreamt of. Run your credit report, make sure it is in good shape, have a substantial down payment ready and start shopping for that dream home today.