Today, there are so many different ways to buy a home. You can buy a home the traditional way from a seller who actually owns the home. But with the housing market in a funk, there is an abundance of other ways to find and purchase a home. Many people are looking for deals so they look to properties that were foreclosed on and buy the properties directly from the bank. Another method is buying a home that is being shorted or being short sold. Lastly, investors are buying properties and fixing them up then reselling for a profit.
Now how do I finance these properties? Sounds simple enough, but each method of purchasing a home has its own challenges when it comes to getting a mortgage. The first method of buying a home from an individual sounds easy enough, but the biggest challenge is the appraisal. The buyer and seller come to terms, but due to a depreciating market, the house does not appraise for what they are selling it for. Depending how much under value it comes in at, this can cause the deal to fall through. When buying from a bank, plan on it taking longer than when buying from an individual. There are more people involved in the transaction and it always seems like someone higher up needs to sign off on something. You can usually get a good deal buying a foreclosure, but be aware that banks usually sell the property as is and are unwilling to do any repairs. This is what can kill a deal if the property is not in an acceptable condition per the loan guidelines. For most loans, the property needs to be in at least average condition with very little deferred maintenance. This means that the house is just about move-in ready. The house usually does not need all kitchen appliances, but will require at least a stove. If you are trying to get a government loan such as FHA financing, the requirements are even stricter.
Today, some of the best deals are the result of a home being short sold. This means the bank is agreeing to accept less than what is owed on the mortgage. The process is complex and can take anywhere between 45 day to 1 year or more. The adage is that there is nothing short about a short sale. You must be willing to bend over backwards to appease the bank and be willing to wait a long time. This can really affect the loan process. When your loan has been submitted and is approved by the lender, the approval is only good for a certain amount of time, so 30 to 60 days. After which, you have to update everything or even start over.
Lastly, buying a home from an investor also has its challenges. The investor is providing a benefit to the community by buying up distressed and neglected property, fixing it up and reselling it. This will have a very positive effect on the neighborhood and even home prices when a house is fixed up and someone moves in and takes care of it. The challenge for a lender is making sure the investor is truly providing value and is not just flipping a property which can be illegal. In the past, an investor might buy a property and immediately resell to for a sizable profit to a straw borrower (fake). This sceam devasted many neighorhoods especially in Atlanta. To try and avoid this from happening again, lenders have new seasoning requirements which means the seller must have owned the property for a certain amount of time. Also, they try and limit the amount of profit the investor can make. And in many cases, this loan may require a second appraisal.
The bottom line is that getting a loan today is much more difficult that in the past. Please make sure you choose your loan originator carefully. He will be able to give you advise on how best to proceed and what loan programs best meet your home buying requirements.
George Beylouny is the Branch Manager and licensed loan originator for Silverton Mortgage located in Atlanta, GA. He can be reached at George@mgatl.com or www.mgatl.com