San Diego REO and Foreclosure information |
Published: Wednesday, December 16, 2009
Looking for the answers for the most common questions when buying an REO home in San Diego
Looking for the answers for the most common questions when buying an REO home or also called a bank owned. Educating yourself while shopping online for a bank foreclosure in the San Diego market will make the process easier.
Can I use FHA or VA financing to purchase a foreclosure in San Diego?
In 2008 the Federal government relaxed its standards on FHA financing to accommodate the REO market place. No longer is a termite report and clearance required. The guidelines for the condition of the home are now relaxed to only require repairs that would fall under the classification of health and safety items. The guidelines do require empty pools to be filled and operational, windows with bars must have quick releases installed; broken windows need to be replaced are just a few items stilled required. This sweeping reform didn't impact VA loans. A termite report and clearance are still needed along with the house being brought up to a higher standard than FHA. The repairs would be required to be completed before closing. The down payment on FHA is only 3.5% (which can be a gift) or VA which is zero down payment.
Can I buy a fixer with little down and have money to do the repairs?
FHA has two excellent programs for fixer properties. The 203K streamline which will allow you to put 3.5% down payment and obtain $30,000 to improve your home after closing. This money can be used for windows, roofs, flooring, new kitchens or baths. This program is designed for the light fixer, anything which is not structural in nature. For the house that needs more work than the $30,000 you can use the 203K program. This loan still only requires a 3.5% down payment. As with any FHA financing if you cannot show enough income to qualify, a non-occupying co-borrower can be used to help qualify.
What if Fannie Mae owns the house?
They have a special program called the Homepath loan. Only a 3% down payment is required. No mortgage insurance is needed, which can save hundreds of dollars a month. Be careful on FannieMae contracts they usually ask you to pay all cost associated with the transfer of the property. This can mean you are paying for an additional title policy and transfer tax.
What protections due I have buying a property from the bank?
You will have a title policy insuring clear title to the property. The standard contract used by realtors in California will give you 17 days to have the property appraised and your loan approved. Within that time frame you may cancel the contract if you didn't receive loan approval or the property doesn't appraise. By state law you will receive a TDS or a Transfer Disclosure Statement. The agents must disclose anything that has a negative impact on the property. The seller, which is the bank, is exempt from this standard disclosure, since they never lived in the house. You are required under the contract to receive a property ID report. This will disclose any positional risks in the area such as fault lines, ancient slide areas or some of the topics discussed. You will have the right to a home inspection, to determine any hidden defects or problems. On a condo the foreclosing of the note usually doesn't wipe out the back HOA dues. Be careful to check the status of any back fees.
Most REO's are purchased as is without out repairs. Bank Owned verses a Short Sale?
With a short sale you may have to wait up to 6 months for the short sale lender to approve the sale. Then you may end up with a higher price than you started with or the bank may not approve the short sale. A contract on an REO gives you a locked in price, closing costs and time frame.
What if the bank sold it to an investor and he is trying to sell it to you?
You must wait 90 days from the time of sale to enter a purchase agreement for FHA financing. Many banks use the same policy for VA loans.
Why buy now?
Interest rates are at historic lows. Many properties are still selling a 50% from the high point of the market, and do not forget the $8,000 federal tax credit which may be expiring.
How should I start looking for a property?
First we recommend selecting a good real estate agent. You should interview your potential agents for years of experience, knowledge of the process when buying a bank owned property, and you should feel comfortable with them as a person. Many buyers select their agent by default rather than design. Your real estate agent can make the difference of a bumpy road along the way or a smooth purchase.
What is the second step in the process?
You will want to be preapproved by a lender and know what your payments and expenses are with a price range you can afford. Many REOs require your preapproval to come from a nationally recognized bank, to have your offer presented. Most banks will do your preapproval for free in the hopes of securing your business. You will need to provide the bank with current pay stubs two years tax information and current asset documentation.
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