A Guide to Buying Short Sales, REOs and Fixer-Upper Homes
Real estate tips to help home buyers who are thinking about purchasing short sales, REOs and fixer-upper homes.
Home buyers thinking about buying short sales, REOs and fixer-uppers will face a home-buying process which differs from a “regular’ residential home buying experience. Buying properties in these categories can save money for buyers when they do their due diligence and work with a North Carolina real estate who has experience handling these types of real estate transactions. Before heading down this road, make sure to read our guide to buying short sales, REOs, and fixer-upper homes.
What is a Short Sale?
Simply put, a short sale occurs when a property is listed for sale for less than what the owner owes on the property and the seller cannot come up the necessary funds to make up the difference at closing. In order to cut its losses, a lender may agree to accept less than what is owed on the mortgage. One major short sale contingency is that the lender (or lenders if there are multiple mortgages) must approve the short sale amount a buyer offers to pay to purchase the home.
Buying a Short Sale Property
Buyers thinking about making an offer on a short sale must understand a few things. First, you will need a lot of patience. The lender may take up to two months (multiple mortgages take even longer) to approve the sale of the home. Second, buyers must be aware that the lenders are likely to expect you to buy the home “as is,” which could lead to costly repairs issues down the road. Third, when a cash offer is not involved, lenders prefer buyers who are pre-approved, have a large down payment and can close at any time with no contingencies.
What is an REO Property?
REO (real estate owned) homes are properties which went into foreclosure and did not sell at a foreclosure auction. The home is now owned by the lender. These are also often called bank-owned properties. These REO homes are then listed for sale on the open market for buyers to purchase.
Buying an REO Property
While home buyers may be able to purchase an REO home at a good price, don’t expect to buy bank-owned properties at a major discount as lenders and their listing agents do their homework when pricing REOs. Like short sales, buying an REO is a complicated process and home buyers must be both prepared and patient. Buyers will have to purchase the property “as is”, but should put a contingency in their offer allowing them out of the deal if a major problem is found in an inspection after the offer is accepted.
Should You Buy a Fixer-Upper?
Another option for a home buyer looking to buy a North Carolina home at a discount would be to purchase a fixer-upper. However, it is important to consider whether buying an older home that needs a good amount of work the right decision for you. Can you really afford to buy a fixer-upper and can you get financing for a home that needs a lot of repairs and renovations?
If your plans include looking to buy a home in North Carolina that would be considered a fixer-upper, discuss this when interviewing real estate agents. You will need an agent experienced in helping buyers purchase older homes.
Fixer-Upper Repairs and Renovations
Before buying a home that falls in this category, buyers must do a tremendous amount of due diligence. Not only should you conduct a property inspection to uncover and document noticeable repair needs and hidden issues, but you will also need contractors to provide estimates for repairs and renovations you cannot do yourself. These can include installing a new roof, updating electrical and adding rooms.
And don’t forget about all the DIY projects you plan to perform yourself. You will need to price out material costs for those as well. Once you have gathered all the estimates and factored in additional funds to cover unexpected costs, you need to look at your overall housing budget and determine if you can afford the cost of renovations when added to your purchase offer.
Home Loan for Fixer-Upper and Location of Home
When interviewing lenders, buyers must also discuss their intentions to buy a fixer-upper house. Taking this route may mean that your choices for mortgages are limited. There are, however, mortgage loans such as the FHA 203k, which is specifically designed for fixer-uppers. It is up to you to make sure you work with a mortgage broker or lender who can help get you approved for one of these loans.
As you probably already know, location is always important in real estate. Talk to your real estate agent about the neighborhood and the values of other homes in the area before buying a fixer-upper. Once your work is complete, you do not want the value of your home to be well above others in the area because it could cut into your profits when it comes to selling your home.
While a guide to buying short sales, REOs and fixer-uppers are helpful, nothing can beat the insight and advice of a seasoned and proven North Carolina real estate agent. If you have questions about buying a home in Durham, Raleigh and Chapel Hill, do not hesitate to contact us at Red Door Company.