Mortgages for Foreclosure Purchase and Repairs

Purchasing foreclosures also means discounts, but with the markdown is the price of repairs. According to RealtyTrac, foreclosures or REOs sold at an average discount of 27 percent compared to non-distressed properties in the first quarter of 2012.  Through an FHA 203(k) loan, potential buyers who want to purchase a discounted foreclosure but don’t have cash for the repairs may find a way to receive financing.

According to HUD, the 203(k) program is the department’s main program for rehabilitating and repairing single family properties, and it’s viewed as an important tool to revitalize neighborhoods.

In order to be eligible, the property must be purchased as a primary residence or it can be for a HUD approved nonprofit. Also, the property must be a one-to four-family residence that has been completed for at least one year.

Dan Green, loan officer with Waterstone Mortgage and author of themortgagereports.com, explained that FHA 203(k) program can be used on any 1-4 unit residential property, and is not limited to just HUD properties or foreclosures.

The maximum amount that can be taken out for the property is based on the value or the purchase price of the property before rehabilitation (whichever is less), plus the estimated cost of rehabilitation or 110 percent of the property after improvements, according to HUD.

A down payment is required, and the minimal amount for a down payment is 3.5 percent of the accepted bid price plus the cost of financing additional repairs.

Since there is more “file” to underwrite for an FHA 203(k) loan, Green said the approval process takes longer than a standard FHA mortgage.

“FHA 203k approvals take more time, but are no more difficult than any other mortgage type,” said Green. “Borrowers should expect to provide the documentation required, and should respond to loan officer requests in a timely manner

There are a limited number of banks who offer these loans, so contact me at 850-305-6256 for more information on who offers these in the Destin/Niceville/Crestview/Fort Walton Beach/Navarre areas.

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Multiple Listing Services REO category

The requirement was reported on Inman News March 7, following another story published March 4 on Palm Beach Post that revealed some banks are not wanting agents to tell if a property is indeed bank-owned.

The Palm Beach Post article stated that Wells Fargo Bank’s Premier Asset Services division instructs agents who sell their REO properties to list the owner as “Owner of Record,” rather

than specifying that the owner is Wells Fargo Premier Asset Services.

Officials with the Palm Beach Gardens based MLS told Inman News that the mandatory REO data field was already in the works before the Post published its story on the matter.

While including an REO field is not required by MLSs, Realtor.com stated that certain MLSs have made it an option to indicate if a property is bank-owned, but some agents opt to not fill out that information.

REO properties, which are typically viewed as requiring more repairs than non-foreclosed homes, have an advantage of selling at greater discounts and can be an attractive option to investors.

According to a RealtyTrac report, REOs sold for an average of $149,686 in the fourth quarter of 2011, which is 36 percent below the average sales price of a non-foreclosure home; the average discount on bank-owned homes for all of 2011 was 40 percent.

An article from RealtyTrac also listed the top banks to buy bank-owned properties from based on its foreclosure sales data. The banks and their REO sale price averages are Ally Financial, $60,254; Wells Fargo, $83,530; Citigroup, $68,406; JPMorgan Chase, $98,864; and Bank of America, $120,801.