As a real estate agent in Highlands Ranch I get asked about foreclosures and bank owned properties all of the time. The perception is that by purchasing a bank repossession you are automatically getting a great deal thousands of dollars below market value. There are definitely opportunities to be had in buying these homes but much of it depends on what type of buyer that you are ( owner/occupant or investor ) and what type of bank is selling the property.
Investor vs. Owner Occupant
In recent years with the government involvement with Freddie Mac and Fannie Mae, the selling of these bank assets has changed. Very similar to HUD Homes ( HUD Homes are FHA loans that have been foreclosed upon ) both Fannie Mae and Freddie Mac only allow owner occupant offers to be presented during the first 13 days. If a property is in good condition and priced well, then most likely an owner occupant will purchase it during that time. It is the governments attempt to offer these bargains first to people that are going to live in the property rather than an investor that would fix it up and re-sell the property for a profit. HUD homes are offered to owner occupants during the first 10 days and investors can bid on them afterwards. I often get calls from investors to go look at some property that was just listed for sale at a great value only to be disappointed because the bank will not consider their offer until they are past the owner/occupant first look deadline.
Financing for Foreclosures
The next thing to consider when buying a foreclosure is what type of financing that you will use during the purchase. Many people that buy homes in Highlands Ranch use FHA financing because they only require 3.5% down payment. This is a good option as long as the property is in good condition. FHA loans require an FHA appraisal/inspection and has to meet or exceed certain conditional guidelines. If the property needs a new roof or the carpet is destroyed etc. then FHA will not give you a loan on the property. Their reasoning is that they do not want to set people up for failure. For many people just scraping up the 3.5% down payment is tough. They do not have extra money for costly repairs. There would be an even higher foreclosure rate among FHA loans if they allowed loans to be given on properties that they knew beforehand had problems. Conventional loans require 5% or more down payment and are a little more lenient on inspection issues. But you need to be realistic and ask yourself, ” Do I have the money to replace the carpet and roof if I buy this home?” There are rehab loans available called an FHA 203K loan that allows a buyer to finance in repairs to the home. I will get into the pros and cons of those loans in future blogs.
Is a Foreclosure a good deal?
The answer is: Maybe. In Highlands Ranch and Lone Tree the average sale price is around $375,000. If you can find a good bank foreclosure with very little work needed and with average square footage for 15-20% discount then yes it is probably a “good deal”. If that property is outdated and needs carpet, paint a new roof and windows then I would say no it is not a good deal. The investors understand that every project costs more than you budget for and usually takes more time and trouble to complete than anticipated. To calculate the real costs to fix up a property, get three estimates for every job that needs to be done. Average out those estimates and add 25% to the total and you most likely will have a realistic idea of the cost to complete.
I have experience helping people find foreclosures, short sales and regular sales in Highlands Ranch and would love the opportunity to discuss your needs and how we can meet them.