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.

It is the opinion of many people that the government, despite what the President may say, will in fact bail out mortgage high players Fannie Mae and Freddie Mac. For these companies to fold would be detrimental to the economy. But what exactly are Fannie Mae and Freddie Mac and what do they do? Simply put, a home buyer achieves a mortgage from a lending institute and Fannie Mae or Freddie Mac purchase the mortgage to then resell it again to investors. They receive money from the sale to the first lender to continue lending. In the last decade Freddie Mac handled nearly $164 billion in New York mortgages alone; serving over 1,325,000 families. If Freddie Mac and Fannie Mae have serious financial problems then credit will tighten and it will become increasingly difficult for any consumer to get a mortgage; but particularly for the first time home buyer. At this point it is unknown how much money these companies will need to borrow from the Federal Reserve, the government or the public treasury; however, the government has stated that if they do need it they can come for it. With the potential for government bailouts confidence is building.

When push comes to shove, impact from national news or news on a local level does not change the rules in applying for a first mortgage; make sure you have your finances in order before shopping for a home, make sure your credit is in line and be aware of your credit score. The first time home buyer needs to educate themselves more than ever as lenders begin to tighten their belts. Knowing what your credit score is, how to increase that score and look favorable to the lenders will increase your chances of obtaining a mortgage regardless of what is happening in the financial world; these are basic rules.

Before a lender will grant a loan for a home he will first run a credit report on the buyer to help them get a picture of the buyer’s ability to pay the loan. The last thing a lending institute wants is for a buyer to get in over their head and default on their mortgage. It is therefore recommended that before shopping for a home or showing up at the lending institute to apply for a first mortgage you run a credit report of your own. You can do this for free once per year by going to annualcreditreport.com. This will help you figure out any areas that need to be corrected and what areas could be improved. Once you are satisfied and your lender runs the report he will be able to help you understand what you can afford. If you have discovered your credit is in shambles or your credit score is low there are ways to bring up your credit score and you will have the time to do so.

Freddie Mac and Fannie Mae having financial problems is just the reflection of what is happening in the economy today; we are all feeling the pinch. This is a time, more than any to tighten our own belts, avoid using credit excessively and manage your credit well; doing these things will allow you to be among the few people that the lenders extend a first time home buyers loan to.

With the large number of foreclosed homes on the market many first time homebuyers are focusing on them thinking they’ll get a great deal. While it is true, the homebuyer will probably save some money, they should not expect to get bargain basement prices. Banks want to sell homes quickly; however, they know how much the homes are worth and they are not in business to lose money. Buyers who come close to the fair market value of the home will often get it; most of the time, they will not get it for a steal though. Buying bank owned foreclosures will often result in additional waiting time as well as work. Banks work on their own time-frame and do not have the urgency to close a deal like most sellers will. A foreclosed home is bought as is and will not have the history available that a seller would be able to give you. This means you will buy the home and accept the flaws it may have; in many cases the former owner will have ceased taking care of it before the home went into foreclosure.

Most foreclosures are bought by investors that are willing to put in the work and effort involved in restoring the property and reselling it for a profit. They have the experience and finances to know what to look for and what to avoid; this is their business. This does not mean the first time buyer cannot buy a foreclosed home to save money, they may however; find a better deal and security by buying a home that is in pre-foreclosure.

The time between a home owner receiving a notice of default from the lender and the time the lender puts the property up for auction is considered pre-foreclosure. Purchasing a home at this time may result in the best bargains and allow you to consult with the owner about the home and the neighborhood. There is an art to it though and it may be difficult to catch it at the right time.

To begin with finding out about pre-foreclosures is the most difficult part and often is achieved by watching the paper for public notices or special websites. Then you will deal directly with the home owner who will often not be happy about losing their home; however, is often happier to sell it then let the bank have it.

Once you have an agreement with the owner you will have little time to complete the transaction before it goes to auction. Being prepared is the key, be sure you are ready to buy a home at this time, have an amount of money in savings for down payment and closing costs, be pre-approved by a lender; these steps will help expedite transactions.

It may be easier to buy a home conventionally but if you are up for the game and want to find savings on the home despite the risks buying a pre-foreclosed or foreclosed house may be for you. If you don’t end up with a money pit you just may end up with the house of your dreams!