guide on buying foreclosure properties

8/14/2019 Guide on Buying Foreclosure Properties

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Guide on BuyingForeclosure

Properties

By: Sani H. Panhwar



Buying Foreclosures; by Sani Panhwar 2

COTETS

Building a Foreclosure Portfolio 4Buying a Foreclosure Home With o Money Down 4

Buying A Home With Bad Credit: How To Clean Up Your Credit Score 6

Creative HUD Home Financing 6

The Pros of 203k Loans 6

The Cons of 203k Loans 7

Adjustable Rate Mortgages (ARM) and Your Foreclosure Home Purchase 7

FICO Scores, What Affects Them And How Mortgage Lenders Look At Them 8

FICO Scores and Interest Rates 9

First Time Homebuyer Advantages 9

Lower Interest Rates For First Time Homebuyers 9

Tax Exempt Status For Foreclosure Homes 9

Exemption of Real Estate Appraisal 10

Early Bidding Window For Foreclosure Homes 10

o Current Home To Sell 11

Termite Inspections and Foreclosure Home Repairs 11

Familiarize Yourself With Your Real Estate Marketplace 11

What does the average home sell for in your area? 11

What is the average time a home is on the market in my "backyard"? 11

How many foreclosure home deals come available on an annual basis? 12

Rank The Areas Containing Foreclosure Homes in Your Marketplace 12

Shop For Equity First. Then Marketability. 12Foreclosure Home Buying Advantages 12

Foreclosure Home Bidding Rules 13

How Much To Bid For the Foreclosure Home 13

HUD Foreclosure Homes 14

HUD/FHA Government Foreclosure Bidding Formula 14

VA Foreclosure Bidding Formula 14

Foreclosure Home Investing: Entry Level Homes 14

Foreclosure Homes With Zero Down 15

Foreclosure Real Estate and Home Ownership 16

Foreclosures In 15 Minutes 17

How to Determine Equity 17How much can I get the foreclosure home for? 18

How much can I sell the foreclosure home for? 19

How much will it cost to repair the foreclosure home? 19

Foreclosure Tips 20

How Much Home Do I Qualify For? 20

How To Buy a Bank Foreclosure Home 20




The Foreclosing Lender’s Profits 21

Condition of Title 21

Property Disposition 22

Bank Foreclosure Investing Overview 22

Disadvantages of Buying a Bank Foreclosure Home 24

How To Buy a Fannie Mae Foreclosure Home 24How To Buy a Freddie Mac Foreclosure Home 24

How to Buy A Hud Foreclosure Home 25

Find a Good Real Estate Agent – It’s a ecessity 25

Contact a Well-Informed Mortgage Lender 26

The Bottom Line in HUD Foreclosure Homes 27

How To Buy A VA Foreclosure Home 28

Understanding VA Foreclosures 28

Term Offer vs. Cash Offer 28

Term Offer for a VA Foreclosure Home 28

Cash Offer for a VA Foreclosure Home 29

Investing in Foreclosure Homes: Risks and Rewards 29Buying Pre-Foreclosure Homes 30

Buying a Foreclosure Home at Auction 30

Buying REOs 30

Investing In Real Estate: How To Sell Your Foreclosure Home 31

Real Estate Investment Strategy 2 – Buy and Rent Option 31

Real Estate Investment Strategy 3 - LIC to Sell 32

LIC to LIC 32

Quick Foreclosure Facts 33

Why buy a foreclosure home? 33

Real Estate Investment vs. The Stock Market 34

Save $100,000 On Foreclosure Home 35

Understanding Mortgage Interest Rates 35

Frequency of Mortgage Payments 35

Secrets of HUD Foreclosure Homes 36

The Easy Way to Win the Mortgage Game 37

The Importance of A Foreclosure Home Inspection 37

What Are Bank REO (Real Estate Owned) Properties 39

What Are Escrows? 39

What Everyone Should Know About Equal Housing 41

What Is a HUD Foreclosure Home? 43

How Does a Home Become a HUD Foreclosure Home? 43The Importance of a HUD Foreclosure Home Inspection 44




Building a Foreclosure Portfolio

If you are just beginning to build your real estate portfolio, it is important that you

understand the choices you need to make now that will have an effect on your flexibilitylater.

• What is my short-term real estate investing goal (i.e., how many foreclosurehomes the first year)?

• Am I trying to generate revenue from my foreclosure homes now or in the future?How much?

• Do I want to be a landlord or not?

• What is my credit like? (If you need to improve your credit, do it now.)

• How much cash am I working with?

• What are long-term real estate investing goals?

Be sure to ask yourself these questions before beginning your real estate investing andforeclosure portfolio. If you already have investment properties, you should still ask yourself these questions. Write your answers down and refer to this list before makingany decisions with regard to purchasing your next foreclosure home. Do not be afraid toreassess your goals to be sure that you current actions are still in track with your long-term real estate investing goals.

Buying a Foreclosure Home With o Money DownFederal Housing Administration (FHA) foreclosure homes are different from any other type of foreclosure home in that there are several methods of buying a property utilizing

low money down or no money down techniques. It is essential to first understand theseveral different ways in which the FHA lists the foreclosure homes that they are selling.

I = InsuredIN indicates a foreclosure home that currently meets minimum property standards (MPS)and is currently in livable condition. These foreclosure homes are not currently availablewith no money down, but can be obtained with no money by applying these techniques.Simply bid on the foreclosure home using an FHA 203b mortgage (as seen on the HUDcontract) and then have the foreclosure home inspected. Be certain that you are with thehome inspector and that the home inspector understands that you are interested in findingthe deficiencies of the foreclosure home. Be sure the foreclosure home deficiencies are

included in the necessary MPS items, including structural, heating and plumbing—paintand carpet will not be enough.

Send the foreclosure home inspection along with your request to include the necessaryfunds in the price you are paying for the foreclosure home. Repair funds requested mustexactly meet the increase of the purchase price for the foreclosure home. Be sure that theamount requested is less than $5500 and that is approximately the three percent you wererequired to put down on the mortgage.




You could increase the amount of money received for repairs by applying for a 203k mortgage after the foreclosure home has been inspected. This raises the amount of fundsreceived to a possible limit of 110% of the value of the foreclosure home after repair.

IE = Insured with Escrow

IE indicates a foreclosure home that requires some degree of repair in order to meet MPS.Additionally, IE foreclosure homes are not currently in livable condition. Theseforeclosure homes are not currently available with no money down but can be had withno money by applying these techniques.

Simply bid on the foreclosure home using an FHA 203b mortgage (as seen on the HUDcontract) and then have the foreclosure home inspected. Be certain that you are with thehome inspector and that the inspector understands that you are interested in finding thedeficiencies of the foreclosure home. Be sure the foreclosure home deficiencies areincluded in the necessary MPS items, including structural, heating and plumbing—paintand carpet will not be enough.

Send the foreclosure home inspection along with your request to include the necessaryfunds in the price you are paying for the foreclosure home. Repair funds requested mustexactly meet the increase of the purchase price for the foreclosure home. Be sure that theamount requested is less than $5500 and that is approximately the three percent you wererequired to put down on the mortgage.

You could increase the amount of money received for repairs to the foreclosure home byapplying for a 203k mortgage after the foreclosure home has been inspected. This raisesthe amount of funds received to a possible limit of 110% of the value of the foreclosurehome after repair.

UI = Uninsured

UI indicates a foreclosure home that requires repairs in order to meet FHA standards andthat is currently not in livable condition. These foreclosure homes are available with lowmoney down but can be obtained with no money down. It is even possible to buy theseforeclosure homes and make a substantial profit if you apply the following techniques.Simply bid on the foreclosure home using an FHA 203k repair mortgage (as seen on theHUD contract) and then have the foreclosure home inspected. Be certain that you arewith the home inspector and that the inspector understands that you are interested infinding all of the deficiencies of the foreclosure home. Be sure that the foreclosure homedeficiencies are included in the FHA minimums, including structural, heating and plumbing—paint and carpet will not be enough.

The home inspector will send the foreclosure home inspection to the mortgage lender along with the financial requirements to do all of the noted repairs. The inspector’sassessment of the repair cost can be adjusted up or down in order for you to get enoughmoney to complete the repairs. Be sure to allocate enough so that you can break even onthe purchase. If you have any need for additional cash, include a margin so that you caneither add to your savings or pay some additional debt off. The maximum mortgage




allowed is 110% of the value of the property after repairs. The bank generally frowns onthis practice, but if you act as the general contractor and work on the foreclosure homeyourself, you can pay yourself for the work performed.

Buying A Home With Bad Credit: How To Clean Up Your Credit Score

Repos, bankruptcies and even late payments on your phone bill can be the difference between being qualified to buy a home or not. Negative items on your credit can be removed quickly and easily if you know how. Theonly reason credit problems ever become an issue is when they are ignored. By hidingfrom the issue you allow the credit problems to gain momentum and the cycle of ignorance continues to grow.It is not difficult to understand that when a credit reporting agency annotates that youhave paid late on your car payment that they do not actually gain financially by doing so.These credit agencies merely post information that was given to them by the creditor.This is important to understand in order to appreciate how and why the system discussedhere has been so successful.

By disputing the accuracy of the negative credit item through a series of challenges to thecredit reporting agency you are challenging the reporting agency to defend their information. If the credit agency elects to meet the challenge and go to court they may befound to be accurate, but what have they gained?

The credit reporting agency will have lost because the process of defending the creditreport in question is costlier to them than any financial reward they could possiblyreceive. Remember that the credit reporting agency is not a creditor itself, therefore winor lose they lose because of the cost involved. This is why so few challenges are taken up by the credit reporting agencies. Fewer than one in one hundred challenges to a creditreport are fought when the challenger has done the appropriate paperwork and done itcorrectly.

In order to properly challenge each credit agency a professional service is recommended.You can challenge a credit agency on your own with some prepackaged programs, butthe likelihood of success is magnified 100 times by using a credible firm that is wellversed with this segment of the credit industry.

Creative HUD Home Financing

What’s the easiest way to make money on a foreclosure home? Purchase a foreclosurehome that needs some repairs (over $5,000.00) and apply for a 203k loan. The FHA(Federal Housing Administration) insures 203k loans and allows you to borrow a predetermined amount of money to finance repairs to your foreclosure home.

The Pros of 203k Loans

• 203k loans are the most flexible way for you to customize your foreclosure hometo meet your specific needs. Floor plans can be changed or updated, kitchens can be modernized and almost any other feature of your new foreclosure home can beimproved using a 203k loan.




• By taking advantage of a 203k loan, you can skip up to eight months of mortgage payments on your foreclosure home.

• A 203k loan allows you to bill yourself for hours worked on your own home andMAKE MONEY!

The Cons of 203k Loans

• 203k loans are slightly more expensive than the usual FHA loan.

• 203k loans are slightly more complicated than the usual FHA loan.

The 203k loan program is an FHA insured loan that has similarities to construction loanswith some added bonuses. A booklet explaining 203k loans in more detail can bedownloaded from the link below or requested from your local real estate agent. This booklet can answer most questions with regard to a 203k loan and how it relates to your foreclosure home.

Adjustable Rate Mortgages (ARM) and Your Foreclosure Home PurchaseIf you qualify for the particular home you wish to purchase with a fixed interest rate, thenyou should choose the fixed rate mortgage 99% of the time. In this article you will learnwhy the ARM can be such a bad idea and how you can overcome the anxiety of your decision based upon the facts. Because the current interest rate is so low—and has beenthat way for sometime now—making a choice with regard to an adjustable rate mortgageversus a fixed rate mortgage is not difficult.

You may be apprehensive of mortgage payments now, but within a very short period of time you will become comfortable. Generally, the first monthly mortgage payment is the

most intimidating. After the first payment, the mortgage payment becomes just another monthly payment.

The bank would not have qualified you for the foreclosure home you are interested in if they had not already determined you were capable of sustaining the payment. Don'tforget that banks are pretty clever about what they do and don't often lose money.Because the bank is safe, you are safe.

Only use an ARM for qualifying reasons. The current rate rotates between seven to eight percent. If you absolutely must go with an adjustable rate mortgage then there is no better

time than when buying a government foreclosure home, as you may be able to include all points and closing costs into the loan.

Do not be misled by the erroneous loan programs that abound in the market today. CDAloans and Farmers home loans are among the many other loan programs that simply willnot work when purchasing a foreclosure home. In general terms, these loans are not goodfor much and in with specific regard to foreclosure homes they are actually bad. The




single reason that these loans are such a bad idea is that they are not compatible with thetype of properties, specifically foreclosure homes, that you are interested in buying.

It is true that CDA promises a lower interest rate, as does the Farmers home loan program. However, because the wait for the funds can be 90 to 120 days, no government

agency is willing to wait that long to remove the foreclosure home from their foreclosurehome inventory. Additionally, the money is not guaranteed to be there when you arefinally ready to purchase your foreclosure home.

FICO Scores, What Affects Them And How Mortgage Lenders Look At Them

FICO stands for Fair Isaac & Company. Credit scores are reported by each of the threemajor credit bureaus: TRW (Experian), Equifax, and Trans-Union. The credit score doesnot come up exactly the same with each credit bureau because the bureaus each place aslightly different emphasis on different items. The credit score itself can range from 300to 900. The formula for exactly how the credit score is calculated is proprietaryinformation and owned by Fair Isaac. Here, however, is an approximate breakdown of

how it is determined:

• 35% of the credit score is based on your payment history. This makes sense sinceone of the primary reasons a mortgage lender wants to see the score is to find outif (and how timely) you pay your bills. The credit score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The morerecent, the worse it will be for your overall credit score.

• 30% of the credit score is based on outstanding debt. How much do you owe oncar or home loans? How many credit cards do you have that are at their credit

limits? The more credit cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 30% or less of their limits.

• 15% of the credit score is based on the length of time you've had credit. Thelonger you've had established credit, the better it is for your overall credit score.Why? Because more information about your past payment history gives a moreaccurate prediction of your future actions.

• 10% of the credit score is based on the number of inquiries on your report. If you've applied for a lot of credit cards or loans, you will have a lot of inquiries onyour credit report. These are bad for your credit score because they indicate thatyou may be in some kind of financial trouble or may be taking on a lot of debt

(even if you haven't used the cards or gotten the loans). The more recent theseinquiries are, the worse for your credit score. FICO scores only count inquiriesfrom the past year.

• 10% of the credit score is based on the types of credit you currently have. Thenumber of loans and available credit from credit cards you have make adifference. There is no magic number or combination of types of accounts that




you shouldn't have. These actually come into play more if there isn't as muchother information on your credit report on which to base the score.

The credit score is actually calculated using a "scorecard" where you receive points for certain things. Creditors and lenders who view your credit report do not get to see the

scorecard, so they do not know exactly how your score was calculated. All that thecreditors and lenders see are the final scores.

Basic guidelines on how to view the FICO scores vary a little from lender to lender.Usually, a score above 680 will require a very basic review of the entire loan package.Scores between 640 and 680 require more thorough underwriting. Once a score gets below 640, an underwriter will look at a loan application with a more cautious approach.Many lenders will not even consider a loan with a FICO score below 600, some as highas 620.

FICO Scores and Interest Rates

Credit scores can affect more than whether your loan gets approved or not. They can alsoaffect how much you pay for your loan, too. Some lenders establish a "base price" andwill reduce the points on a loan if the credit score is above a certain level. For example,one major national lender reduces the cost of a loan by a quarter point if the FICO scoreis greater than 725. If it is between 700 and 724, they will reduce the cost by one-eighthof a point. A point is equal to one percent of the loan amount.

There are other lenders who do it in reverse. They establish their base price, but insteadof reducing the cost for good FICO scores, they "add on" costs for lower FICO scores.The results from either method would work out to be approximately the same interestrate. It is just that the second way "looks" better when you are quoting interest rates on arate sheet or in an advertisement.

First Time Homebuyer Advantages

The advantages of being a first time homebuyer are plentiful and can be utilized if youknow and understand your options and the ways in which you can save money.

Lower Interest Rates For First Time Homebuyers

As a first time homebuyer, you are offered far lower interest rates than an investor. If thestandard interest rate you are being quoted is 7.5%, then you can be sure that the realestate investor who is interested in your hopeful new foreclosure home is going to befaced with an interest rate of at least 9.5%. When the real estate investor is planning torent the home after purchase, this increase of 2% interest plays into the financial viabilityof the purchase for the investor. Knowing this should help you understand the benefits of getting out to the foreclosure home you are interested in sooner and moving on it faster.

Tax Exempt Status For Foreclosure Homes

Most states recognize the need for government-owned homes to be removed from theledgers of the taxpayer. In order to make these foreclosure homes more attractive to a potential homebuyer, many standard items are not required.




For example, most counties in the United States have special tax exemptions for buyersof foreclosure homes. This reduces and, in some cases, removes entirely the requirementto pay county transfer taxes when the home is purchased directly from the federalgovernment.

In Maryland, for instance, a first time homebuyer is allowed an exemption from payingthe Maryland state transfer tax. That equates to a 0.25% savings on the purchase price of the foreclosure home at the settlement table.

Exemption of Real Estate Appraisal

Another example of savings for a first time homebuyer is the exemption of a real estateappraisal when buying a foreclosure home from the Veterans Administration (VA) or Housing and Urban Development (HUD). As long as you are asking the governmentagency selling the foreclosure home to help finance the same house, you are not requiredto have the home appraised. These agencies allow this because they have already

appraised the foreclosure home and therefore do not require you to do the same. You can,in fact, use their appraisal to determine value when the need arises.

Early Bidding Window For Foreclosure Homes

Because HUD strives to make more Americans homeowners, an owner occupant youwishing to bid on a foreclosure home is offered a five-day window of opportunity to bidon a given home during its first five days on the market. During this time, a real estateinvestor that wishes to bid on the same foreclosure home is not legally able to offer a bidat all. After the five-day window has closed investors are permitted to come out of thewoodwork with a vengeance. Use this window to your advantage by getting out to aforeclosure home that you might be interested in quickly and either moving on it or moving away from it.

o Current Home To Sell

First time homebuyers are not hindered in bidding no a foreclosure home by needing tounload another home before buying the property they are bidding on. This keeps manythousands of would-be homebuyers out of the foreclosure home arena. Use this to your advantage.

Additionally, there is no such thing as a contingent contract when making an offer on aforeclosure home. The word “contingent” refers to the situation that homebuyers findthemselves in when they currently own a home and must sell that real estate it before buying a new home. When the seller accepts a contingency, the homebuyer has noobligation to purchase if their house does not sell. Use the lack of contingent offers in thegovernment foreclosure arena to your advantage.

If you do happen to be an owner of a home and are looking into the purchase of agovernment foreclosure home, be content with the knowledge that every contract has afinancial contingency and, therefore, you are indirectly not obligated to make the




purchase unless you qualify to carry two mortgages at the same time, which is highlyirregular.

Termite Inspections and Foreclosure Home Repairs

Whereas most homes require a complete termite inspection and repairs paid for by the

homebuyer, the VA and HUD have both found it beneficial to cover these costs withregard to foreclosure homes so long as the homebuyer is financing the home with their respective help.

If you are buying an Insured Property, FHA/HUD will pay for all necessary repairsrequired in order for the foreclosure home to meet minimum property standards (MPS).MPS is not the same as traditional FHA standards. MPS is quite a bit less rigorous. Donot let this scare you off, as termite testing and treatment are fairly standard and MPSshould have no effect on the quality of termite treatment.

Familiarize Yourself With Your Real Estate Marketplace

First, become familiar with your real estate marketplace. Real estate markets sometimesdiffer from town to town and sometimes from zip code to zip code or even block to block. It is important that you know how your real estate market differs from that of themarkets around you. Determine your perimeters geographically. As your experiencegrows, your perimeters can and should expand so that with enough experience and asizable financial cushion the idea of buying foreclosure homes in different states will become a reality. First, however, you must get comfortable with the foreclosure homemarket in your own "backyard".

What does the average home sell for in your area?

The answer to this question will enable you to determine the spread between the futuretarget purchase price of your foreclosure home and the average sales price (your equity).To use the top-end selling price for that area will not give you an accurate picture. Hopefor the best but prepare for the worst.

What is the average time a home is on the market in my "backyard"?The answer to this question will help you calculate the carrying costs of your future purchase as well as determine if one neighborhood is more desirable than another. If your future purchase has a days-on-the-market time which, when calculated, consumes all of the possible profits then you need to know this in advance. Do not assume that becauseyou are more aggressive or intelligent than the average homebuyer you will be able toreduce the time the home is on the market. Often, time on the market has nothing to dowith your ability to advertise your home or negotiate. Sometimes interest rates increasequickly (spike), contractors that you hired are late or events that are out of your controlwill affect the selling date of the home.

How many foreclosure home deals come available on an annual basis?

The answer to this question will help you recognize an opportunity from an option. If such deals are rare, then you may have to reduce your expected returns in the short termfor a great upside in the future. If a neighborhood has few (if any) home buying




opportunities that indicates a strong market. If you have a personal guideline of 15%equity before purchasing a home, you may decide that a particular neighborhood is stilldesirable even though you can only find a 10% equity position. The appreciation of theforeclosure home in one year will make up the difference.

Rank The Areas Containing Foreclosure Homes in Your MarketplaceWhat are the most desirable medium to low cost housing areas in your "backyard"? Break down the neighborhoods on your list of foreclosure homes. Assign each neighborhood anumber from one to five. One is terrible and five is the best neighborhood for foreclosurehome investing purposes. Medium to low cost housing is specified for several reasons:

After you have assigned each neighborhood a value it will be far easier to recognize goodopportunities. Foreclosure homes in neighborhood A might be a possible option, inneighborhood B there may be great foreclosure home opportunities and neighborhood C aterrible idea.

Many skilled investors do not know how to make a determination betweenneighborhoods and may make expensive mistakes that can be easily avoided with thissimple system.

Shop For Equity First. Then Marketability.

Many would-be investors make the simple mistake of repeating what they have heardregarding what makes a good real estate investment. They believe that a 3-bedroom/2- bath free standing home is the only investment worth making. This is absolutely not true.What you want is equity. You do not want to end up with an oddball property. If one- bedroom condominiums are commonplace in your real estate market then they are every bit as valuable as a single family/free standing home.

Shop for equity first and then for marketability. Leave all the foolish notions for thosewho know less than you. Your potential market has just increased because your knowledge with regard to buying a foreclosure home has increased.

Foreclosure Home Buying Advantages

There are numerous advantages to buying a foreclosure home, including the incrediblesavings that can be enjoyed financially, as well as the possibility of buying a larger andmore valuable home via foreclosure than you could ordinarily afford.

Divorce, loss of employment and loss of life are the most common reasons for aforeclosure to occur. A foreclosure occurs when the mortgage lender of the home loanmoney to buy the home is not paid back in a timely way. When one of the three situationslisted above transpires and the homeowner is not adequately prepared, a foreclosure ismost likely to be the end result. Soon after one of the “big three” occurs, the homeowner is several months behind in payments and the mortgage holder will not negotiate with thehomeowner as special exemptions cannot be made for every homeowner going throughdifficult times. It seems oppressive, but very often a foreclosure can be the best thing for




the homeowner because it removes the pressure and allows the foreclosure party to potentially live in the foreclosure home for several months free of charge.

After the foreclosure party has vacated the foreclosure, the foreclosure home is given tothe foreclosure agency that insured (FHA) or guaranteed (VA) the mortgage. This

government agency will begin the process of cleaning and appraising the foreclosurehome. The fact that these foreclosure homes are so plentiful keeps the federal governmentfrom determining the debt of each home independently. The foreclosure homes are soldfor the appraised value at the time of foreclosure. When a foreclosure home is under-appraised, it is given a list price below the market value. These under-appraisedforeclosure homes are not a rarity.

In truth, the sheer number of these foreclosure homes results in countless under-valuedforeclosure homes. Appraisers are asked to perform ten to twenty appraisals onforeclosure homes in a single week, far more appraisals than can be performed with thedegree of accuracy normally associated with a “normal” appraisal. These appraisers bid

on the job of appraising thousands of home foreclosures at once and rely on volume inorder to make a profit. With volume come mistakes. These mistakes can and do go bothways. When you see a foreclosure home that has obviously been over appraised, findsolace in the knowledge that right around the corner there is bound to be a foreclosurehome that is under appraised.

Take advantage of the volume of foreclosure homes that these government agencies aredealing with and profit from it. As a first-time homebuyer, you hold all of the cards.

Foreclosure Home Bidding Rules

If you are looking at a bank foreclosure, then the rules of bidding are fairly simple.Contact your real estate agent or the listing agent and express your interest in theforeclosure home. Then:

Have your mortgage loan officer draw up a preapproval letter for no more than the priceyou plan to offer on the subject foreclosure home.Have your real estate agent send the listing agent a letter of intent for the foreclosurehome. The letter of intent differs from a full-blown contract in that it covers only thegeneralities of the transfer of the foreclosure home (i.e., price, financing, proposedclosing date, etc.).

Once the listing agent receives the letter of intent for the foreclosure home from your realestate agent, the listing agent will send the letter of intent to the bank holding theforeclosure property. Be prepared to wait at least a week from this point, as banks work slowly and cautiously.

How Much To Bid For the Foreclosure Home

Obviously, one of the main considerations when thinking about placing a bid on aforeclosure home is how much to bid and, moreover, how to bid just enough to win the bid for the foreclosure property without overpaying. This is where the trouble potentially




begins. Unlike HUD or the Veterans Administration (VA), which are both governmentagencies, banks determine the price they are willing to accept for a foreclosure home on a per property basis. Ask your real estate agent to pull the tax records in order to determinethe amount mortgaged prior to the foreclosure. Do not try to bid less than the bank oweson a foreclosure home until it has been on the market for three to six months.

Do not be afraid of bidding below the mortgaged amount for the foreclosure home. Adiscount of 10-15% is the most you can expect, and the bank may still not be able to bethis flexible regarding sales price. If you do not offer full price for the foreclosure home, be prepared to lose the foreclosure property to another homebuyer.

HUD Foreclosure HomesHousing and Urban Development (HUD) is the largest single resource for real estateforeclosures in the country due to the fact that everyone qualifies for an FHA loan. (Incontrast, the VA requires that you be a true veteran in order to initiate a veteran loan,thereby limiting the number of qualified loan applicants.) FHA loans also provide a lower

down payment than conventional loan programs, as most first-time homebuyers opt for reduced down payments. Whereas the first-time homebuyer would be responsible for five percent down with a conventional loan program, an FHA loan requires only three percentdown.

HUD/FHA Government Foreclosure Bidding FormulaPer the HUD/FHA government foreclosure bidding formula, you can bid five percent below the asking price at a maximum. If you bid less than five percent, the bid will not beaccepted and your bid for the foreclosure home will be thrown out. If you require closingcost assistance, you must ask for it during the bidding process and this figure must beallowed in your final tabulation. HUD allows for a maximum of five percent for closingcost help, and in some states that amount is far less. Ask your real estate agent or mortgage lender for guidance.

VA Foreclosure Bidding FormulaA similar formula exists for VA foreclosure homes. The Veterans Association has theability to be a little more flexible regarding sales price as the amount owed on theforeclosure home can play a larger role with regard to repairs. Whereas HUD allows nomore than a five percent price reduction, the VA will sometimes take as much as ten percent off the price of the foreclosure home. The VA will also allow for six percentclosing cost help. While one percent may not sound like a lot, it becomes fairlyimpressive when one percent of the price of the foreclosure home equals several thousanddollars.

Get educated, get a good real estate agent and get into a low-priced foreclosure home.

Foreclosure Home Investing: Entry Level Homes

Four percent of all homes mortgaged are foreclosed upon. This percentage is stackedmore heavily toward the segment of the real estate market referred to as "entry levelhomes". This does not mean that higher-priced homes do not also become foreclosure




homes, however the higher priced the home, the greater the financial resources thehomeowner normally has at their disposal.

This financial generality works well to your needs as a real estate investor as the marketfor entry-level homes is by far the strongest, most active segment of the real estate market

and will be for the foreseeable future. The first-time and second-time homebuyer encompasses a wide variety of homes from one-bedroom condominiums to two-bedroomtownhouses or even three and four bedroom single-family homes.

The type and style of foreclosure homes available to you are more heavily weighted toyour geographic areas of interest (where you live) rather than toward what is generally perceived as wise investment choices.

The real estate investing community has been focused on types of homes more than onthe true value to a wise investor. Profits should be the single guiding light in your searchfor real estate investment success and financial freedom. Profits are driven by equity

balanced with repair and carrying costs. Understanding how to balance these threevariables is paramount.

Foreclosure Homes With Zero Down

There is an old saying in real estate that goes: “If you want to play in the game, you fistmust show up.” In other words, you must first build a relationship with a particular lending institution in order for the lender/mortgage holder to have a lower perceived risk.By allowing a homebuyer—you—to purchase a home without risking any of your ownmoney, the mortgage lender assumes all the risk. If, for any reason, you were to beforeclosed on, the mortgage lender will, of course, lose additional funds on the home.This risk brings responsibility on the part of the mortgage lender. The downside for theloan officer that approves your no-money-down scenario is that the mortgage lender’s board could fire him or her for losing additional money on a home that has already lostmoney.

It is a popular misconception that lending institutions make money foreclosing on homes.The foreclosure process is a negative cash experience for the mortgage lender. Thelending institution is not in the business of real estate management. They are in the business of making money just as it was lent to the initial homebuyer. The interest andtime frame are precisely how the mortgage lender wants to be paid.Prove your value to the mortgage company by presenting a good credit score and your current real estate portfolio. If your credit is not as good as it could be, make it better. If you do not have a current real estate portfolio, start building one now.

Do not make the mistake of asking for no-money-down scenarios from the lender withoutat least one of aforementioned qualifiers. The worst that can happen is that you are turneddown. The idea of a real estate portfolio and good credit is to increase the number of times you hear “Yes.” Once you have proven your ability to help the lending institutionsout of their predicament, they will begin coming to you when they need your special kindof help.




Finally, always remember that the relationship with the mortgage lender is moreimportant than any single deal. When you put people first, you will win. Put money first,and you are bound to lose.

Foreclosure Real Estate and Home OwnershipThere is a system to purchasing foreclosure real estate that can be broken down into six basic steps. Following these steps will simplify a foreclosure real estate transaction whileavoiding common mistakes made by the typical consumer.

Step 1 – The pre-approval process.

The most common mistake made by the typical homebuyer is shopping for a homewithout having financing pre-arranged. A qualified mortgage lender will help thehomebuyer figure out the amount that the homebuyer is qualified to borrow anddetermine any options available to the homebuyer to increase borrowing power.Homebuyers need to explore alternative lending programs, such as those backed by the

Federal Housing Administration (FHA), the Veterans Administration (VA), The Federal National Mortgage Association (Fannie Mae) and private sources of funds. The pre-approval process is much more involved than a simple pre-qualification process. Pre-approval converts a homebuyer from “contingent” to “all cash,” improving one’snegotiation position.

Step 2 – The interviewing process in selecting a real estate agent.

Homebuyers need to select the real estate agent that will best serve his or her needs withregard to finding and purchasing a foreclosure home.

Step 3 – The actual hunt for a foreclosure home.

A common mistake made by many homebuyers is that they select a foreclosure home toorapidly. In a hot market, however, a quick decision may be necessary. Buyers shouldview at least five or ten homes within their price range. The importance of step one, prequalification, is that homebuyers are only looking at homes they can afford, thusexpediting the shopping process.

Step 4 – The negotiating process.

Once a homebuyer finds the right home, it is time for negotiations. If you have followedthis outline in its proper sequence you are ahead of the game. In an active real estatemarket, being pre-approved prior to finding your home will improve your chances of getting the home desired should there be competition for the home with multiple offers.Home sellers are more likely to accept an offer from a prospective homebuyer if theyhave the assurance that they homebuyer can complete the transaction for the homerapidly.

Step 5 – Loan Processing and Approval.

Once the home is selected and the terms have been negotiated, your mortgage lender willtake the homebuyer from the loan application to the final approval of the home loan.




There are many steps along the way that will need constant supervision and involvementfrom all parties.

Step 6 – The Closing Process.

A homebuyer that does not come to the closing fully prepared may run into unpleasant

surprises that could not only delay closing on the foreclosure home, but could very welldissolve it altogether. The homebuyer’s team—their real estate agent, mortgage lender and closing representative—will coach the homebuyer on what happens at the closing,who needs to be present, and what documents to bring.

The loan professional that has made this information available to you specializes inassisting those individuals with obtaining a home loan whether for purchase or refinance.Your loan professional in most cases can advise you on the best approach and help youwith the specific loan requirements necessary for purchasing the foreclosure home youdesire.

Foreclosures In 15 MinutesInvesting in foreclosure homes for resale is not that different from investing inforeclosure homes for rental income. Many of the same rules apply and many guidelinesremain constant. As with any type of investing, the point at which you enter willdetermine how profitably you exit. The single largest distinction between real estateinvesting and stocks, bonds, mutual funds or precious metal is that real estate allows theinvestor the opportunity to have a more direct and immediate impact on the investmentvehicle—the foreclosure home—through rehab, paint, carpet, etc. This articledemonstrates how to quickly make an assessment of a potential real estate investment.

This guide should allow the average investor to make a rapid and well-thought-outdecision. An informed real estate investor will not "lose out" because of third-partyfactors such as obtaining appraisals or contractors and repair people. An aggressive, proactive approach by the real estate investor can reduce the time it takes to obtainforeclosure homes. A passive approach or an offhand attitude does not promote goodopportunities. Remember, work WITH your real estate agent and get proactive!

How to Determine Equity

The old adage about the only the three words in business being "Location, Location,Location" is as true as ever. In real estate, however, those three words are "Equity,Equity, Equity." The difference between what is owed on a property and its market valueis called equity. As a real estate investor, the goal is to buy the foreclosure home for lessthan the full value and sell for market value in order to make a profit in the process. Thequestion is, at what point does caution balance against risk to make a profit on aforeclosure home?A strong equity position is generally targeted at 25% after repairs. An equity position lessthan 25% can work for rental investments, but for resale purposes 25% is a safe figure. Inorder to determine if 25% after repairs can be achieved there are only three variables thatneed to be weighed in the mind of an investor:




• How much can I get the foreclosure home for?

• How much can I sell the foreclosure home for?

• How much will it cost to repair the foreclosure home?

It is not difficult to obtain answers to these questions as long as the readily available data

can be obtained quickly and accurately distilled into usable information. By using thefollowing guide and examining each foreclosure home in terms of these three variables itshould not take more than fifteen minutes to determine if a particular foreclosure home isa wise investment.

How much can I get the foreclosure home for?

First, ask what your real estate agent knows about the particular foreclosure home:

1. How long has the home been on the market? (Not vacant, but available for sale.)

2. Can investors bid on the home? (Some properties are for owner/occupants only.)

3. What does your real estate agent think about the home? (A good real estate agentis worth his/her weight in gold.)

Second, look at the foreclosure home yourself. Is it a "fixer upper" or is it "marketready?" The cost to make a foreclosure home ready to sell has to be considered as part of the cost of buying a property. Usually a good look will tell you how much of acommitment in funds will be required.

Third, be sure that you are willing to own the foreclosure home for the duration. While itis certainly possible to get in and get out without a serious commitment of finances, beready to own the foreclosure home until it is sold. Some banks have regulations statingyou must take possession of a property before you can sell it again. If, for whatever reason, your buyer is unable to complete his end of the transaction, you need to be prepared to be the owner of the investment property until it eventually sells.

Fourth, bid quickly and often. Nothing is more frustrating than investing a lot of effortinto a project for nothing. When considering investments, do not hesitate and risk missingan opportunity. If a deal looks only “so-so” (only a 10% equity position, for instance)BID LOW to achieve that 25% potentiality. It could be a good rental, or even a modest

resale. And there is always the chance you might win the bid. In investing, as in life, "hewho hesitates is lost." After submitting a bid, start looking for the next investment. Don'tdelay a possible "big dessert" while waiting on the first course.

How much can I sell the foreclosure home for?As a general rule of thumb, most investors are motivated to purchase with a minimum25% equity position (after repairs). This requires two separate deductions in order to be




sure of a 25% equity position: the true market value of the subject property (after repairs)and the actual repairs.

In order to determine the true market value without ordering a full-blown appraisal (bothtime and financially prohibitive), an investor must look at comparable sales. "Comps" are

available from your real estate agent or online from services like HomePriceCheck.While the online services may serve as a general guide, the comparables your real estateagent can obtain will take into consideration many more factors. Look at the entireneighborhood in print format. Then consider the most recent sales that reflect the styleand neighborhood of the subject property and compare them to your investment home.

How much will it cost to repair the foreclosure home?After looking at the comparable sales, the investor need only reduce the repairs tounderstandable figures in order to calculate if the foreclosure home can be purchased andrepaired for 75% of its market value (the 25% equity magic number).

To estimate repairs one could have any number of contractors offer bids and submit proposals, however the time required for meeting with three contractors and getting proposals may not be available. A quick-thinking, fast-acting investor can estimate work required by walking through the subject foreclosure home and tallying the figures withouta second appointment.

These figures are not concrete numbers, but should allow a quick and easy comparison of value allowing a decision to be made after the estimates of repair have been performed.

The following should offer some averages for the more common repairs to a 1200 squarefoot rancher without a basement.Paint w/minor drywall repairs: $800.00-$1000.00 per houseCarpet (one grade above builders): $1000.00-$1200.00 per 1,000 sq. feetKitchen and Bath flooring: $300.00-$500.00 per room New Roof (try to repair first): $2,0000.00-$3,000.00 per house New Heating and Air: $1,000.00-$2,500.00Appliances (Save Money-buy used): $250.00 per applianceMiscellaneous Expenses: add 10% to total

Foreclosure Tips

Tip #1 - The rewards are greatest when the real estate investor is a knowledgeable, pro-active force in the process. Take an active roll in your foreclosure home investment.Tip #2 - The figure for how many days on market (DOM) a property was available beforeits eventual sale will be found on the MLS listing. Be sure to ask your real estate agentfor these figures specifically so that a determination can be made regarding thedesirability of a particular neighborhood, style of home, and other factors.Tip #3 - Along with "sold" properties, take a look (in print) at other homes that are still"available" or "withdrawn" from the market to determine the health of the market.




Tip #4 – Be sure that you are true to your investigation and do not allow passion or trepidation to sway your decision-making either way. It is more important that you swingthan it is that you hit a home run. Bid often!Tip #5 – Once the subject property is under contract, be sure to get a foreclosure homeinspection and estimates from more than one contractor.

How Much Home Do I Qualify For?

Determining how much home you can afford will greatly affect your home buyingdecision. Even if you have been pre-qualified for your home purchase, you may want tohave your information reviewed by your mortgage lender to determine if there are waysyou can be qualified for a higher amount or a lower interest rate.

The major factors that determine your home mortgage qualifying amount are:

• Your Income

• Your Monthly Expenses

• Your Credit Score

In order to give yourself a snapshot of what you qualify for, multiply your annualhousehold income by a factor of three and add $10,000.00. For example, if your annualhousehold income is $50,000.00 multiply that by three giving you $150,000.00. Add$10,000.00. You qualify for a $160,000.00 mortgage.

This home mortgage amount is not representative of any debt that you may have such ascar payments and credit card debt. Remember, only recurring debt counts against your qualifying amount.

By pre-qualifying online, your mortgage lender will review your credit reports free of charge and ask you a few questions about your monthly expenses and income. In somecases you may need to provide information about a co-signer or clean up your credit toincrease the amount of home for which you qualify.

You will be required to gather past tax information, pay stubs, receipts, or other documentation. Talk with your mortgage lender about what information he will need toget the ball rolling on the purchase of your home

How To Buy a Bank Foreclosure HomeMany new real estate investors want to buy foreclosure homes directly from the bank.

The attraction to bank-owned properties is understandable, as you borrow money fromthe bank to purchase a home. It is natural to assume that the bank owns the home;however, whether through a Deed of Trust or Mortgage, the title to your home is either held by a third party or pledged as security for the loan. So, in fact, the bank does notactually own the foreclosure home at all.You borrow money from and give mortgage to the bank. The mortgage is the securityinstrument utilized to protect the bank from loss should you default on the home loan.




Unless you bought a bank foreclosure home directly from the bank, the bank has never owned the foreclosure home at all.

The Foreclosing Lender’s Profits

The goal of the foreclosing lender is to gain possession of the foreclosure home. The

financial goal of the lender is the recovery of the principle loan balance, accrued interest,late fees, penalties, taxes paid on behalf of the home owner, court costs and attorneys’fees. In most states, the laws are written so that the mortgage lender can only attempt torecover these widely accepted standard losses.

The mortgage lender will add in every legitimate expense when foreclosing on a home.This is what is sued for: the total the mortgage lender claims is owed by the owner of theforeclosure home. In most states, this is the maximum amount the mortgage lender cancollect. The laws are written this way to protect homeowners from unfair practices.The commonly held notion is that a bank (or any other lender) must sell a foreclosurehome for the same amount it cost in order to gain possession of the home and, therefore,

cannot make a profit. This is false. If the foreclosing lender is the successful bidder on theforeclosure home at auction, it will take possession of the foreclosure home for the veryfirst time. When this happens, all the rules change. The lender, now the legal owner of theforeclosure home, can do anything it wants with the home, including sell the foreclosurehome for any amount it desires.

Condition of Title

When purchasing foreclosure homes, homebuyers are often concerned about the qualityissued by the mortgage lender. A common belief is that there may be liens or judgmentsclouding the title of the foreclosure home. This is a myth. The mortgage lender will bidon a foreclosure home at auction only if it wants the home. The mortgage lender,typically the senior lien holder, wipes out all junior lien holders or judgments against theforeclosure home in the process.

If the foreclosing mortgage lender does not bid at the sheriff’s sale or auction, it probablydoesn’t want the foreclosure home. This may be due to excessive superior liens, such asIRS or tax liens. (Tip: If the mortgage lender doesn’t bid for the foreclosure home atauction, you probably shouldn’t bid on the home either.)

The mortgage lender, in an effort to recoup its losses, will bid on the foreclosure home,wipe out lien holders, and then pay the balance of outstanding taxes on the foreclosurehome to secure the home’s clear title. No mortgage lender will go through the time, effortand expense of foreclosing on a home only to lost the foreclosure home for a fewthousand dollars in back taxes.

Having absorbed these costs, the mortgage lender generally adds them to the asking priceof the foreclosure home and will sell the home with a clear title. The lender does not haveto sell the foreclosure home for what was paid at auction.




Another myth is that all banks are bending over backwards to give away foreclosurehomes. Lenders want to sell their foreclosures. Lenders—banks in particular—arecorporations. These corporations are driven to make money, not to lose it. A bank has toanswer to its shareholders just like other corporations do and thus will not “give away” aforeclosure home.

The business of repossessing homes is not new. Over the years, many mortgage lendershave developed effective methods of selling their foreclosure homes quickly withminimal loss.

Property Disposition

Lender practices and procedures with regard to foreclosure homes vary greatly. Somelenders widely market their inventory of foreclosure homes, while others practically hidethem. Some banks advertise foreclosure homes in daily newspapers, while others demandthat you maintain an account with them—or better yet, become a stockholder—just to gettheir list of foreclosure homes.

Lenders are in the money business, not the real estate business. Thus, most foreclosurehomes are marketed through recognized real estate brokers or real estate agencies. Somereal estate agencies specialize in foreclosure homes and may represent several lenders’homes.Real estate brokers may have several real estate investors line up just waiting for a goodforeclosure home to turn up. Real estate brokers can also assist the mortgage lender indetermining market prices of foreclosure homes, suggesting marketing strategies,recommending appraisers or contractors with expertise in foreclosure homes, etc.Some mortgage lenders establish a set price for a foreclosure home and will only allowthe sales agent to consider offers for less. Many mortgage lenders dispose of their ownforeclosure homes. Depending on the size and complexity of its foreclosure homeinventory, the mortgage lender may have one part-time clerk working on foreclosurehomes sales or an entire staff of special asset managers handling the sale of foreclosures.

Bank Foreclosure Investing OverviewPurchasing foreclosure homes directly from the bank is the most popular way to buyforeclosures. It’s fairly easy and less of a headache than other real estate investingmethods because it involves less complications and risks.

Locate bank or government foreclosure homes in the newspapers or by researching themat the county courthouse. You can also contact a real estate agent or use a good listingservice. Locate foreclosure homes that meet your investing criteria, those that are in your area, price range, size and style. Determine whether you are buying a foreclosure home toresell or to secure a home for yourself. Decide if the foreclosure home is a bargain bydeducting the lender’s asking price for the home from the average market price of verysimilar homes in the immediate area.

Your goal as a real estate investor is to realize a tidy profit. You can buy a foreclosurehome at a 15-20% discount and earn a 35-40% return. As a homebuyer, you should buy a




foreclosure home below market value with a low down payment, low interest rate andreduced closing costs.

Contact the mortgage lender or the real estate broker and meet him at the foreclosurehome so you can inspect it. Record any damages to the foreclosure home and deduct the

home repair estimates from your price. Use a good home inspection checklist.

Real estate investors must deduct all expenses associated with buying, repairing, borrowing, holding and closing on the foreclosure home again from the price they think they can get.

Homebuyers should negotiate around the four discount factors: price, down payment,interest rate and closing costs. The bank, being a lender, can negotiate all these items.

If you still like the numbers and the foreclosure home, proceed with a written offer for the home containing the following:

• A statement indicating your intent to purchase the foreclosure home

• The physical address of the foreclosure home

• The legal description of the foreclosure home

• The price you are willing to pay for the foreclosure home

• Your down payment terms

• Your financing terms

• The date you desire to close on the home

• Any contingencies

• Your deposit information

• Your name, address and phone number

Depending on the foreclosure home and several other variables, you may want to buy a property at 15-25% below market value. Start your offers accordingly.

Unrealistic offers on foreclosure homes will be rejected quickly. Learn to work with the banks. You can negotiate around interest rates, price and down payment, just stay withinreasonable boundaries if you want to succeed in purchasing a home.

Some mortgage lenders sell thousands of foreclosure homes every year. Many sell their foreclosure homes at or near market price. We know one lender who has sold almost10,000 properties in the last three years, with average sales of 99% of market value.

Not all lenders behave the same way. Try to locate those that are more flexible in their property disposition policies. When the bank accepts your offer, close on the foreclosurehome as quickly as possible. Avoid delays and complications from competitive offers.




Disadvantages of Buying a Bank Foreclosure Home

In the real estate industry, the rewards follow the risks. Therefore the payoff from thisinvesting method is typically lower than that of buying pre-foreclosures or buying aforeclosure home at auction.

An REO investor should have no problems achieving a 10-20% discount from the marketvalue of comparable homes. Savings of 25-35% are harder to find. Savings of 40-60% are possible, but are getting more rare.

Other disadvantages to buying a bank foreclosure include: a lender that moves at a slow pace; a lender selling the property “as is” with no cooperation in making repairs to thehome or allowances; and the rare but possible problem of evicting a tenant or homeowner from the foreclosure home.

How To Buy a Fannie Mae Foreclosure HomeFannie Mae foreclosure homes are owned by the Federal National Mortgage Association.

These foreclosure homes are homes that were previously purchased using a conventionalloan (as opposed to a VA loan or FHA loan). Fannie Mae “guaranteed” the loan to themortgage lender by providing “mortgage insurance,” which is paid by everyone whoseeks a Fannie Mae insured loan. A Private Mortgage Insurance premium (PMI) is paidto Fannie Mae by each borrower. There is an upfront cost that is included in your homeclosing costs, as well as a monthly premium paid with each monthly mortgage paymentyou make.

The funds collected from your closing costs and monthly premium are used to reimbursea mortgage lender for any losses incurred by the default of a borrower. For example, if a borrower does not pay their mortgage and the mortgage lender decides it must foreclosein order to be repaid, the lender will serve notice and eventually auction the foreclosurehome. If the auction of the foreclosure home does not generate enough money to repaythe loan in full, the mortgage lender can apply to Fannie Mae for payment in full. FannieMae repays the mortgage lender and obtains the deed to the foreclosure home.Once Fannie Mae obtains the deed to the foreclosure home, it will evaluate the home and put it up for sale. All PMI premiums collected and all proceeds from foreclosure homesales enable Fannie Mae to continue insuring loans and actually “buy” mortgages from banks and other lending institutions. This process allows mortgage lenders to keeplending, thereby “recycling” the banks’ cash on hand (so they do not have to wait 30years to be repaid.)

How To Buy a Freddie Mac Foreclosure Home

Freddie Mac is chartered by Congress and does not actually lend money. Instead, FreddieMac buys mortgages from various mortgage lenders, sets lending criteria and puts loan programs for mortgage lenders to use when evaluating your creditworthiness for amortgage. This process, in turn, makes money available to banks to lend and encouragesmortgage lenders to take a risk with certain borrowers.




Freddie Mac is actually a competitor to Fannie Mae (although Fannie Mae has beenaround since 1938, while Freddie Mac was established in the 1970’s). This competitionenables consumers to get the lowest mortgage rates possible.

Freddie Mac also offers special loan programs to homebuyers from time to time. Freddie

Mac has properties to sell as a result of the loan guarantees it issued to various mortgagelenders. Once Freddie Mac goes through the process of reimbursing the mortgage lender for any foreclosure losses, it will take the deed to the foreclosure home and put the homeup for sale.

Since Freddie Mac’s revenue comes from a combination of Private Mortgage Insurance(PMI) premiums and the actual sales proceeds, you can often find some real bargains.

How to Buy A Hud Foreclosure Home

Before you begin the process of buying a HUD foreclosure home, you need to know whatobstacles you must overcome to make your purchase and how to manage the "risks" of

buying real estate foreclosures. (For basic background on how a home becomes a HUDforeclosure home in the first place, check out the article “What is a Foreclosure?”)

Anytime you sign on the dotted line to purchase a foreclosure home "as is" without evena financing contingency, you had better know what you are doing. This sounds scary, andit should, but there are clear steps you can take that will help make buying a foreclosurehome a better experience for you and make it the best single real estate investingopportunity of your life!

Find a Good Real Estate Agent – It’s a ecessity

First of all, find a good real estate agent. Yes, there are thousands of real estate agentsand there are many very good ones. The bottom line is that you need a good real estateagent who has experience dealing with HUD foreclosure homes. There are web sites thatcan assist you in your real estate agent search. (A good one to reference iswww.USHUD.com, which not only contains educational information, but also includesReal Estate Agent and Mortgage Lender Experts knowledgeable in real estateforeclosures whose references have been checked.)

There some clear differences you and your real estate agent must understand whendealing with HUD Foreclosure Homes. The contract is very different and you must usethe HUD foreclosure sales contract and HUD Addendum. This is critical because youcannot just buy the HUD foreclosure home without these forms and your real estate agentshould be sure to explain both sides of the HUD foreclosure contract. The back side of aHUD foreclosure contract contains all the fine print. (Note: Teachers and police officersare eligible for special programs—the Officer/Teacher Next Door Programs. Althoughguidelines for teachers and police officers are different from other prospectiveforeclosure homebuyers, it is still recommended that the services of a knowledgeableHUD real estate agent be retained.)




HUD also has an online bidding system and you want a real estate agent familiar withthis system. Even if you do not use your real estate agent to find a foreclosure home for you, and instead use other tools available to locate a foreclosure home on your own, youstill need a real estate agent registered with HUD to bid on these foreclosure properties.The real estate agent’s broker must be registered with HUD before their real estate agent

can even submit bids. You should discuss this with your real estate agent during your very first conversation and know in advance that there are bidding deadlines to beconcerned about.

All bids on foreclosure homes are due at midnight on the bid deadline published on theHUD listings. Bids for foreclosure homes can be submitted until midnight each dayMonday through Friday (you can submit bids on the weekend, but they count as if doneon Monday). In most states, New HUD Listings are posted each Friday, usually bymidday, with bids due the following Tuesday for full price Owner-Occupants only. Anexperienced real estate agent will know this and explain this to you, but remember theexact days are different in many areas. Also, be sure to ask your agent to PRINT the Bid

Confirmation that HUD presents on the computer screen after a foreclosure home bid issubmitted. This is the only way to “find” your bid if it gets lost.

The new HUD foreclosure home listings are made available to Owner-Occupant bidderswho are prepared to pay full price for a HUD foreclosure home during the initial bid period. HUD tries to give new homeowners a short period of time to bid against other new homeowners (as opposed to experienced real estate investors.). If the foreclosurehome is not sold during this initial bid period, it will be made available to Owner-Occupants who want to make an offer less than full price (of course you could alwaysoffer full price at any time if you really want the foreclosure property). If the foreclosurehome is not sold during the next seven days, it will be made available to All Purchasers(including real estate investors). Anyone can bid on these foreclosure homes and you can bid any price; it does not mean that HUD will take the offer. After all, this is not a HUDauction but is rather a sealed bid process.

The exact number of days between each category change listed above can differ fromstate to state, which is yet another reason to be sure to deal with a real estate agent whohas experience with HUD foreclosure homes. HUD has also been known to change therules often as they have different M&M Contractors handling HUD property sales invarious states.

Contact a Well-Informed Mortgage LenderIn addition to a good real estate agent it, is a good idea to speak to a mortgage lender familiar with HUD foreclosure homes and, in particular, find a mortgage lender who isknowledgeable about FHA 203k HUD Loan Program. These HUD loans will help youget the money to make the foreclosure home purchase AND get the funds you will needto fix up the foreclosure property. It is this FHA 203k HUD Loan Program which helpsyou get the maximum benefit and the maximum "sweat equity" when buying a HUDforeclosure or any foreclosure home. Part of the American Dream is to buy a home and




fix it up so that it is worth more than you paid for it - the FHA 203k HUD loan is one of the best ways to achieve this.

The FHA 203k HUD loan helps to protect you from yourself. It requires a HUD-approved inspector to thoroughly review the foreclosure home, point out the required

repairs and discuss with you the repairs you would like to have completed. This is sort of a "wish list" because they will lend you all the money as long as you qualify for the HUDloan amount. The minimum is $5,000.00, but these HUD loans include paint, carpeting,kitchens, baths, windows and more.

The best part of FHA 203k HUD loans is that the person who inspects the foreclosurehome for you in the beginning is the same person who inspects the foreclosure home asthe work is completed in order to approve draw requests. You have to complete somework before the repair money is released to you, therefore you have to be prepared to layout the money or get a contractor willing to wait for the draw inspection.While you are not required to get a FHA 203k HUD loan and there are many foreclosure

properties that do not need extensive repairs, the HUD program is very helpful in makingyou think about what you are getting into and providing independent inspectors to makesure the work is done properly and that the foreclosure home is in overall good condition.If you are purchasing an Insured property (IN), no repairs or appraisal are required, butyou should absolutely get a foreclosure home inspection from a certified home inspectioncompany. Your real estate agent should be able to tell you the procedure for turningutilities on before the inspection (HUD doesn't always get the condition of major systemsright). Your real estate agent must make the request to turn on the utilities after HUDaccepts your contract. You will then have 21 days in which to conduct the inspection of the foreclosure home. There is a separate HUD Addendum Form that covers manyspecifics regarding this process and explains why you should get a foreclosure homeinspection. A good real estate agent will know this and be very helpful in explaining andcoordinating the process.

The Bottom Line in HUD Foreclosure HomesThe real point is to do your homework. Before you even begin your HUD foreclosurehome search, you should determine how much house you can afford to buy. This isabsolutely critical to do BEFORE you start looking. It’s easy to fall in love with a homeyou cannot afford to buy. Find the home you think you like and (with the help of your real estate agent) determine what the homes sell for in that immediate area. You will findthat HUD foreclosure homes can be great values, sometimes even great bargains, but theycan also sell for market value if they are in good shape and in a desirable area.

Once you determine that the foreclosure home will work for your family and is a goodvalue for you, figure out how much you want to pay for the foreclosure home. Anytimeyou bid very low you risk losing the bid to someone else who really wants the foreclosure property. Pay what you can afford to pay for the house you will call home. If you onlywant the foreclosure home if it is a "super bargain," then take your chances and bidwhatever you want. However, a word of caution: good HUD foreclosure homes in




desirable areas come and go very fast. Be prepared to be decisive, but do not rush intoanything.

If you do your homework up front you will be better prepared to take advantage of that"great deal" that comes your way and requires you to move quickly in order to get it.

There is no substitute for being well informed, especially when it comes to preparing for one of the largest, more important investments you can make.

How To Buy A VA Foreclosure HomeFew people know the number one best-kept secret of buying foreclosure homes: it is possible to purchase a foreclosure home with no money down. Even real estate agentsoften don’t understand how to get their homebuyers into a foreclosure home with zeromoney down. These easy tactics will show you how.

#1 Little Known Fact About VA Foreclosure Homes - You do not have to be a veteran to buy a VA foreclosure home or to have the VA guarantee the financing on the foreclosure

home.

#2 Little Known Fact About VA Foreclosure Homes - You can buy a foreclosure homefrom the VA and receive a free charitable contribution from the Ameridream Foundationfor your payment regardless of your financial status.

Understanding VA Foreclosures

Homes designated as VA foreclosures—also known as Veteran’s Administrationforeclosures—were last purchased with a Veteran’s home loan. This means that the past purchaser was a Veteran of one of the branches of the United States Military and that the previous mortgage was made possible by the Federal Government which guaranteed thehome loan. By guaranteeing the home loan, the Department of Veterans Affairs agreed torepay the mortgage lender for all money lost by the lender in the event the home wasforeclosed on. This situation benefits the mortgage lender greatly, as their investment inthe home is 100% guaranteed. The Federal Government protects itself by charging each buyer of a VA mortgage a funding fee. The funding fee is a percentage of the mortgageamount and is helpful in several ways.

The funding fee enables the Veterans Administration to allow the Veteran to purchase ahome with no money down. By purchasing a VA foreclosure home from the list of Veterans Administration foreclosures you can proceed with the loan as though you are aVeteran and purchase many of these foreclosure homes for sale with no money down andwithout mortgage insurance.

Term Offer vs. Cash OfferA VA foreclosure home provides for two separate ways to write an offer:

Term Offer for a VA Foreclosure HomeWhen writing a term offer for a VA foreclosure home, the homebuyer is asking the VA tohold financing on the foreclosure home. This provides an opportunity to buy the




foreclosure home with no money down; however, there are still closing costs to contendwith. Closing costs can run anywhere from one to six percent of the purchase price of thehome. Ask your local real estate agent or loan officer for more information.

Cash Offer for a VA Foreclosure Home

When writing a cash offer for a VA foreclosure home, the homebuyer is not actuallyoffering to pay cash, but is rather not requesting that the VA hold the financing on theforeclosure home. The VA is even more flexible with pricing and closing costs with acash offer, as they will not be responsible for the mortgage.

Write the cash offer for the foreclosure home and ask for the maximum contributionrequired towards closing costs (consult with your local real estate agent). As soon as thecontract is accepted, contact the Ameridream Foundation. The Ameridream Foundationwill give you the closing costs as a free contribution. Learn more about the AmeridreamFoundation (www.ameridream.org) and buy your foreclosure home from the VA with nomoney down.

Investing in Foreclosure Homes: Risks and RewardsThe mortgage foreclosure process creates three sets of real estate investmentopportunities: the "Default/Pre-Foreclosure" phase, the "Auction/Sale" phase and the"REO" phase. This article discusses the risks and the rewards of each opportunity.

Buying Pre-Foreclosure Homes

Buying pre-foreclosure homes involves working directly with the homeowner andsometimes the mortgage lender. Your goal is to create a win-win scenario. One “win” isfor the homeowners (they make a sale) and the other “win” is yours (you buy theforeclosure home at a substantial discount).

To accomplish a successful foreclosure home purchase, most experts recommend thefollowing:

• locate loans in default

• evaluate and narrow foreclosure homes to pursue

• inspect the foreclosure property

• evaluate the property owner's needs

• determine the market value of the foreclosure home, fix-up costs, potential sales price and profits

• arrange default work out by negotiating with the owner and the mortgage lender • close on the foreclosure home, repair and resell it quickly

Pros of buying pre-foreclosure homes: Pre-foreclosure homes are a great investingopportunity if done correctly. Discounts off market value can range from 20% to 35% onaverage. A low cash down payment is possible if structured properly. Also, you haveample time to research homes and unique and flexible sales agreements are possible.




Cons of buying pre-foreclosure homes: Sometimes it is difficult to contact the propertyowner. Also, you will usually have a lot of competition for pre-foreclosure homes. Thecourthouse research involved with pre-foreclosure homes can be cumbersome. And youmay need to negotiate with the lien holders.

Buying a Foreclosure Home at Auction

Buying a foreclosure home on the courthouse steps at the auction can be the mostrewarding way to buy properties as well as the most dangerous. The foreclosure home is publicly auctioned off to the highest bidder, and the process moves very quickly. When bidding at the auction, you compete against the lender and other investors.

Auction buyers research foreclosure homes prior to the sale date, pursue realisticopportunities, calculate values and potential profits, determine bid price and follow thehome to the auction and participate.Pros of buying a foreclosure home at auction: Very good to excellent discounts. Investors

can achieve 35% to 45% savings off market values and earn an excellent return oninvestment. This is the only investment method where you can really hit the jackpot.

Cons of buying a foreclosure home at auction: Auctions are frequently postponed, whichcan result in a waste of your time and effort. It is rarely possible to inspect the foreclosurehome in question. To be safe, you should have a title search performed, which can becostly. Unusually large cash outlays deter most investors (note that this can also be seenas a benefit). Certified checks for 10% of the purchase amount may be required with the balance due in weeks, days or even hours. Improper research can lead to devastatingresults.

Buying REOs

Perhaps the easiest way to buy foreclosure property is to buy REOs ("real estate owned").An REO occurs when the mortgage lender takes back the home to gain possession andcut its losses. The lender, however, does not want the home because it is not in the realestate business and is therefore usually motivated to move the property quickly.

Pros of buying an REO: The lender is almost always the senior lien holder, therebywiping out all other liens at the auction. This means an REO will always have clear title,which saves a lot of time, expense and worry when buying a foreclosure home. Mostlikely, the mortgage lender will also have paid any property taxes in arrears. The lender may either repair the property to acceptable standards or allow a discount to the buyer toaccomplish the repairs.

Cons of buying an REO: Rewards follow risk: this is a low risk investing method and therewards can be on the low side as well. Average savings may range from only 5% to 15%off market value, although discounts of 25% or more are possible if you know how.




Investing in foreclosure homes can provide excellent profits. Each of the threeforeclosure opportunities presented here offer both rewards and certain risks. Be sure todo your homework before you buy.

Investing In Real Estate: How To Sell Your Foreclosure Home

When investing in real estate, there are numerous strategies available to help maximizeyour equity depending on your short and long-term investing goals. Designing your exitstrategy is as important as the home purchase itself. This article outlines some strategiesthat can potentially increase your return when investing in real estate.Real Estate Investment Strategy 1 – Buy and Cash OutBuying to cash out is the most easily understood form of real estate investment. Despiteits simplicity, there are some useful strategies for increasing your return:

1. Begin advertising and showing the foreclosure home the day the contract isratified.

2.

Strategize the way in which you want to present your offer to the buyer regardingclosing costs and mortgage amount on the foreclosure home.3. Understand Hart, Ameridream and other no-money-down foundations and how

they relate to your foreclosure home.

4. Determine your break-even point and build it into your profit.

Real Estate Investment Strategy 2 – Buy and Rent Option

The difference between rent options and conventional rentals is that with rent options thecontract is contingent upon a sales contract which is conversely contingent upon therental contract. The sales contract has the purchase price and closing date preset to allowthe tenant enough time to repair credit if necessary and save enough money.The attributes that distinguish a rent option from a non-rent option are:

1. A predetermined price with a built-in appreciation of four percent per year.2. A non-refundable deposit in an amount that you feel secures your real estate

investment. Five percent of the sales price is a starting figure.3. A rental contract and sales contract are endorsed simultaneously.

The transfer of real estate can be accomplished in several different ways. Renting out thehome with the option to purchase is a strategy that allows the owner to maintainownership of the foreclosure home while simultaneously creating a cash flow. Theaverage property owner that rents the home out with the option to purchase realizes a20% higher return over a conventional rental situation.In addition to the reasons already listed, rent options can also be advantageous because:

1. The tenant’s perception is one of ownership, which could translate into the home being better cared for.

2. The tenant is willing to pay more for the feeling that they have a greater sense of ownership over the home.




3. The tenant is willing to put an above-average deposit down on the home, which isgenerally five percent or greater depending on tenant’s credit.

4. The tenant is more likely to stay in the home for over three years because there is perceived ownership.

5. If the tenant reneges on the contract there is no need for you to absorb the expense

of foreclosing on your tenant.

Despite the advantages listed above, the maintenance of the foreclosure home remainssolely the responsibility of the homeowner until the foreclosure home is purchased,which can be a disadvantage. Further, tenants can be over-extended when attempting to pay both rental and option payments.

Real Estate Investment Strategy 3 - LIC to Sell

A Land Installment Contract (LIC), also known as a Land Trust, is a method for transferring a home from one party to another without creating a new mortgage. This toolallows a real estate investor to transfer the ownership of a foreclosure home to a buyer

without that buyer having credit worthy of a mortgage. This opens the same doors as aRent Option with one small difference—it requires the seller to perform a foreclosure in place of an eviction. The foreclosure process can cost between $5,000 and $100,000,while an eviction should cost little more than $500.

An LIC can be favorable because it makes it more difficult for the buyer to be evictedand in some circumstances the buyer is willing to pay a greater amount in order to initiatethe transaction over a rent option.

Real Estate Investment Strategy 4 - LIC to RentAn LIC to Rent is also possible and has been done for many years by land installing the property from the seller and rent optioning the property to the buyer. This option requiresthat you read all “For Sale By Owner” periodical and call the seller directly.

Once contact it made by the seller, ask the following questions:

• Do you need to cash out?

• Are you willing to hold a mortgage?

• How much are you willing to hold?

If the answer to first question is not “yes,” skip the remaining steps and move on to thenext seller.

LIC to LICThe mistake that many investors make is not fully understanding the options that theyhave available. A great way to make a profit in real estate is to buy and retain the property.Rent optioning the property is far more advantageous than Land Installment Contracts for the seller. Land installments offer the buyer more control over the property than isrequired, giving them a sense of ownership and responsibility.




Are you ready to purchase a home? Ask yourself these three questions:

1. Does this foreclosure home meet my minimum requirements?2. How much does it cost to buy this foreclosure home initially?3. How much will this foreclosure home cost per month?

If you have already answered these three questions, then you have a plan for purchasing aforeclosure home. If you allow the situation to become any more complex that the threequestions above, you have overcomplicated the process of buying a home. Don’t listen tothat little voice in your head telling you that you will miss the perfect home. There is nosuch thing as the “perfect” home. There are homes— lots of homes—that you can make perfect. But first, you have to buy one.

The search for the “perfect” home has kept more than a few people in the trap of homerental years longer than they would have been if they had not built their expectations toan unrealistic level. The process of buying a home can be much less intimidating and

frustrating if you just focus on the three questions above and keep them in mind whenlooking at a potential first home.

From there, contact an experienced real estate agent familiar with foreclosure homes tohelp you navigate the particulars and you are on your way. Be sure to also look for amortgage lender who specializes in foreclosure homes.

Quick Foreclosure Facts

Why buy a foreclosure home?

Foreclosure homes are less expensive to buy and less expensive to own on average thanany other type of home purchase. For instance, if you purchase and finance a foreclosurehome through the VA (Veteran’s Administration), there is no charge for mortgageinsurance. [Note: you do not need to be a veteran to purchase a foreclosure home throughthe VA.] The savings on mortgage insurance alone will save you $45.00 per month everymonth as long as own that mortgage. (Based on $100,000.)HUD foreclosure homes do not require that the homebuyer pay for an appraisal if theforeclosure home is financed with an FHA mortgage. Remember that FHA (FederalHousing Administration) is part of HUD (Housing and Urban Development).

Is it always better to finance a foreclosure home through the bank or branch of

government selling the home?

Most of the time this is the best option. For example, the bank that foreclosed on thehome has lost money 99% of the time. The bank can regain some of their losses byfinancing the foreclosure home again. It is strongly advised, however, to contact the realestate agent or mortgage lender in your area familiar with foreclosure homes.

Real Estate Foreclosures




REO is an acronym for “Real Estate Owned,” which indicates that the home has beenforeclosed upon and is currently on the market or soon will be. The foreclosure homeshave been collected and assimilated from literally hundreds of REO warehouses fromevery state in the United States, Puerto Rico, US Virgin Islands and Guam

For years, banks were not willing to allow their REO inventory be published for fear thattheir shareholders would look upon their foreclosure home inventory as a failure tosecure mortgage money wisely. The outlook on foreclosure homes (REOs) that bankshave does not take into consideration the 4-5% foreclosure rate that has remainedconsistent for the past 20 years. Many stockholders do not understand this simpleconstant. Fortunately, banks and lending institutions have become wiser and haveeducated their stockholders about the basic facts of foreclosure homes.

Pre-foreclosure homes and REOs are different. Pre-foreclosure homes have not gonethrough the foreclosure process and therefore cannot be purchased from anyone other than the current mortgage holder (homeowner). This method of buying homes for real

estate investing purposes has been well documented on television commercials and videoseries available for purchase. This type of investing is not the best use of a real estateinvestor’s time as the homeowner, more often than not, is able to avoid or delay theforeclosure process.

The reason this type of foreclosure opportunity is so popular is because of the illusivenature of the deals. This logic is lost on most would-be investors. In short, if the deals arehard to locate then why focus on them?

Buy a home that has already gone to foreclosure (REO) then sell or rent it. Buy another foreclosure home and sell or rent it and by the end of the year you will have completedtwice as many transactions and made more money in the process.

Real Estate Investment vs. The Stock Market

There are investing opportunities, but none are as lucrative as real estate investment.Unlike the stock market, investing in real estate offers real profit.

Investing in real estate offers you direct control over the value of your investment. Paintthe home and it is worth more. Add a deck and the value goes up again. This simple truthescapes most investors and opens the door for you to make a far greater rate of return inreal estate than a similar investment of capital would make in the stock market.

An investment of $100,000 in the stock market would allow you to control 2000 shares of a stock with a price of $50.00 a share. You control $100,000 of assets. The same$100,000 investment in real estate would allow you to buy 10 houses, at 10% down oneach home, with a value of $100,000 per home. You control $1 million dollars of assets,ten times the amount of assets controlled with an identical initial investment in the stock market.




In short, buy real estate as part of your investment portfolio. Foreclosure homes are the best bet for an equity position.

When buying foreclosure homes for accumulation or for resale, the same math usedabove can be put into practice. Use the calculator provided in order to determine the

investment value of the subject property.

Save $100,000 On Foreclosure Home

All homeowners are interested in paying less for their potential new home. You can save$100,000 or more on the total cost of your new foreclosure home without refinancing or strapping yourself into an uncomfortable mortgage payment. The system is easy, takes nowork or fancy calculations, and can be used in purchasing your first foreclosure home or your tenth foreclosure home.In order to use this system you need only understand a little about mortgages and howthey work. By the time you finish this article, you will have the tools and knowledgenecessary to save $100,000 on your new or existing foreclosure home.

Understanding Mortgage Interest Rates

First, you should realize that mortgages are fairly new in the world of finance. For centuries, if you wanted to buy real estate your only option was cash. In the 1800’s banks began to offer the middle classes the opportunity to finance a home. In short, banks andlending institutions have been at this a lot longer than you or I, so they keep the rulessomewhat quiet in order to maximize their profits.In order to grasp the rules of the mortgage game, you must first know and understandhow interest works, as well as comprehend some easy terms and their meanings.

Interest is the percentage you are paying the bank for the ability to borrow a very largesum of money (your mortgage). Using simple math, if you are purchasing a $100,000home, at 8% interest you would be paying the bank $800.00 each month until the loan isvirtually paid off. That equates to $288,000.00 in interest paid over a 30-year term,resulting in the $100,000 foreclosure home costing $388,000. In order to reduce thisamount by roughly $100,000, you need only make one additional payment per year. Bymaking this additional annual payment towards principal, you reduce the amount of thetotal loan, thereby reducing the amount that you are being charged in interest.

Frequency of Mortgage Payments

Other options are available, such as getting a 15-year mortgage rather than a 30-year mortgage. Keep in mind, though, that the 15-year mortgage forces you to pay a higher monthly payment and locks you into that payment in good and bad times.

Another option is to get a biweekly mortgage. This requires you to pay the same amounteach month, but you pay it in 50% portions every other week. A biweekly mortgageresults in one extra payment each year. Although it can be a bit of a hassle to become soregimented, a biweekly mortgage is a great way of saving some money. But use caution.Call your mortgage holder and tell them you want to switch to a biweekly schedule andwould like them to send you a payment book. There is no need to refinance or go through




any hoops, just follow up with the mortgage holder as soon as you get the book and makecertain that they are fully aware of what you wish to do.

The best option that we know of for saving money on your mortgage is simply to makeone extra payment per year. Many people save a small amount each month and make two

mortgage payments in December. Others use their income tax returns to make theadditional payment. Although discipline is required, the return on the investment is verymuch worth the effort.

One final caution: a problem can occur if you do not make a clear notation on the check that the additional payment is being made toward “principal”. Make this notation largeand clear on the check and follow up on the payment with a telephone call to your mortgage holder.

These basic tips should help you in saving money on your foreclosure home purchase.For more information, contact your local loan officer and make an appointment to ask a

few questions.

Secrets of HUD Foreclosure HomesIf the home you are interested in buying is a HUD (Housing and Urban Development)foreclosure home, then the home was last purchased was an FHA (Federal HousingAdministration) mortgage. The federal government nsured the home loan, making the previous FHA loan possible. By insuring the loan, the federal government agrees to epaythe mortgage lender for all money lost by the lender in case the home is foreclosed on.This is a good deal for the mortgage lender as their investment in the home is 100%insured. The Federal government protects itself by collecting a Mortgage InsurancePremium (MIP) on each transaction of a federally financed property at the time the homeis purchased. The MIP is 2.25% of the mortgage amount and is helpful in several ways.

Because the MIP is charged, the FHA can allow a homebuyer to reduce their initial out-of-pocket cash expenditure from 5% to 3% of the purchase price of the home, therebymaking it possible for many more Americans to purchase homes. HUD reports in their mission statement that homeownership is the goal of the majority of Americans. Thisgoal of homeownership has been the driving force behind HUD and their decisions anddirectives since HUD’s inception.

The MIP is pooled with all the other premiums and allows the federal government tocontinue helping homebuyers save money on their foreclosure home purchases bykeeping the costs associated with the home down.

Most importantly to you, the MIP paid by all the former homeowners allows HUD to sellthe foreclosure homes in their home inventory at a substantial discount.

Each foreclosure home has its own financing options. For the best information on a purchase strategy for the particular foreclosure home that you’re interested in, contact areal estate agent in your area familiar with HUD foreclosure homes.




The Easy Way to Win the Mortgage Game

When applying for a mortgage, be sure of your credit. If your credit is not above a certain beacon score (525 +/-) be prepared to pay a high interest rate on your mortgage. Or, if you don't understand the difference between points and interest rate, you may find

yourself paying tens of thousands more for the same foreclosure home than you would if your credit score were higher. This difference can literally cost you as much as new car.

Don't let this happen to you!Here a few tips that should allow you to understand more completely how to win thegame of getting a mortgage.

Never pay points. Points are also referred to as "discount points." This refers to thediscount you receive on your mortgage interest rate for paying points upfront on your mortgage. One point equals 1% of your mortgage amount.

Compare points and interest rates between two or more mortgage lenders.Allow for slightly higher interest in place of paying more than one to two points.

Get your mortgage from some one "in the know" rather than some one "that you know."

If you are buying a second home or investment property, be prepared to pay a higher interest rate due to the higher rate of foreclosures on mortgages in the real estateinvesting arena.

The Importance of A Foreclosure Home Inspection

Regardless of which type of foreclosure home you are interested in buying—VA or HUD—the foreclosure home inspection can help make your home buying experienceeasier. The sequence of buying a foreclosure home is generally helpful in determining theviability of the home you are buying. Apply what you read here and you could gainseveral thousand dollars in repair or associated cost by using the foreclosure homeinspection correctly.

The information that can be gleaned from a quality foreclosure home inspection can alsosave you from making a mistake that could cost you tens of thousands of dollars. Find outhow this small step can get you into or keep you out of a financial jam.

Always keep in mind that no matter where you are in the foreclosure home buying process you can always get out of the contract using the home inspection results. Becauseevery foreclosure home has some problematic issues, you can escape the confines of thecontract by submitting the problems to the mortgage lending company and instantlyhaving your approved loan promptly disapproved. Since every contract has a financingcontingency, like magic you are free of the contract.Do not use this escape clause just because you get nervous. Getting nervous is standard.




Beyond the ability to nullify an undesirable contract, you can use the foreclosure homeinspection to gain some needed repairs and create a little additional cash depending onthe entity that you are buying the foreclosure home from.

If the property is a HUD foreclosure home, get an FHA loan. Remember that there are

three different types of FHA mortgages depending on how the property is offered:

• 203b identified as "IN". The foreclosure home is offered insured, meets minimum property standard (MPS) and is not offered with any additional funds dependingon what you might find out during the home inspection. This does not mean thatyou won’t receive additional repair funds towards your foreclosure home; it justmeans the option is not offered that way. Armed with the written foreclosurehome inspection, your real estate agent or you can appeal to HUD for a repair escrow in order to bring the house up to MPS. The requested repair escrow cannot be more than $5000.00 or HUD will determine that you must get a full 203k mortgage.

• 203b Repair Escrow identified as "IE". The foreclosure home is offered "insuredwith a repair escrow" and has already been assigned an amount to bring the hometo minimum property standards MPS. If you find that the repair escrow is notenough to get the foreclosure home in livable condition, you or your real estateagent can increase the amount of the repair escrow with the use of the homeinspection. Just like with a 203b, you cannot request more than $5000.00 or HUDwill determine that you must apply for a 203k mortgage.

• 203k mortgage. The foreclosure home requires $5000.00 or more worth of repairsto bring the home to MPS. This situation is not a negative. In fact, the 203k loan

has the greatest possibility of make positive cash on an initial foreclosure home purchase.

Remember that you can always take a 203b with or without an escrow and convert it to a203k, but you can never take a foreclosure home offered with a 203k and try to go 203b.If this is attempted, HUD will not be permitted to allow you to close escrow of the property and take possession of the foreclosure home.

All repairs to the foreclosure home must be performed after settlement when buying aHUD.

If the foreclosure home is a VA (Veterans Administration) home, the home inspectioncan be used in order to make repairs performed by the VA prior to settlement. The VAwill not give you an escrow for repairs as HUD will. The VA will, however, have manyrepairs made prior to settlement on your foreclosure home so long as the repairs arerequired to pass the FHA inspection. This is only possible when financing the propertythrough an FHA insured mortgage (203b).




What Are Bank REO (Real Estate Owned) Properties

Bank REO (real estate owned) properties are the most time consuming and mostcomplicated foreclosure homes to become involved in. Information on bank REOs israrely easy to obtain. A great deal of research is required and the only way to conduct

bank REO research is to spend countless hours in the county courthouse.

There is financial risk involved with bank REO properties as well because after theresearch is done and the potential purchaser is prepared to go to the auction, anonrefundable cashiers check is required for ten to fifty thousand dollars. It is possible tofind higher price range homes in this arena, but the home in question may not be vacantand gaining access is sometimes difficult.

Most Bank REOs have a third-party manager who is responsible for the upkeep of theforeclosure home while the bank owns it, and they are your liaison with the bank. Offersmust be made through the third-party manager and they will relay counter-offers from the

bank. In general, banks do not negotiate much on prices, so if you offer less than asking price be prepared to go through the negotiation process several times for a minimaldiscount.

What Are Escrows?

Mortgage lenders generally take over responsibility for the payment of taxes andinsurance so that they can be sure that the payments are made. They require that anescrow account be established with the borrower's funds, from which the mortgage lender makes the payments as they come due. The escrow account is established with a depositthat the borrower provides at closing. Mortgage lenders ask for more than they actuallyneed as a "cushion" in order to assure themselves that there will always be enough moneyin the account.

Since mortgage lenders usually get to keep the interest on escrow accounts, in years pastmany of them maintained unreasonably large cushions. To deal with that, the Departmentof Housing and Urban Development (HUD) issued a ruling that placed a ceiling on thesize of escrow accounts, which in turn limited the amount the lender could ask the borrower to deposit at closing.

The rule is that the deposit cannot exceed the amount needed to prevent the balance fromfalling below an amount equal to two months worth of tax and insurance payments at itslowest point during the year. Although HUD does not do a lot of enforcement, all but ahandful of mortgage lenders follow the HUD rules.

How do I calculate the maximum initial deposit?Add the annual taxes and insurance premiums and divide by 12. This is the amount thatwill be added to your mortgage payment every month.List 12 months running down the page beginning with the month in which your firstmortgage payment is due.




In the second column, enter the tax and insurance payments next to the month in whichthey are due.In the third column, show the amount in the escrow account assuming there is no initialdeposit. The monthly payments made by you add to the account while the tax andinsurance payments made by the lender reduce it.

Scroll down to the month that has the largest shortfall. To the shortfall add two months of payments (the allowable cushion). The total is the maximum deposit under HUD's rules.

Here is an example:Assuming no upfront deposit, the low point of the escrow account is reached in Augustwhen school taxes are due. Through August, total payments from the escrow account are$3468 whereas only 10 payments have been made into the account totaling $2890. Theaccount would therefore be short by two monthly payments, or by $578. The lender isalso allowed a cushion of two months, which is $578. Hence, the total required deposit tothe escrow account would be $1156.

Borrowers who don't want to be bothered checking the mortgage lender's calculation of the required escrow deposit are unlikely to be taken advantage of because lenders can't doit without violating the law. Focus your attention on the many legal ways that mortgagelenders and mortgage brokers can pick your pocket.

At the same time, unintentional mistakes do occur at the closing table that can affect theallocation of costs between sellers and buyers. A recent letter described a $500 mistake of this sort, which the letter-writer discovered by accident. It is a good idea, therefore, tocheck out every number.

What Are Escrows?

Mortgage lenders generally take over responsibility for the payment of taxes andinsurance so that they can be sure that the payments are made. They require that anescrow account be established with the borrower's funds, from which the mortgage lender makes the payments as they come due. The escrow account is established with a depositthat the borrower provides at closing. Mortgage lenders ask for more than they actuallyneed as a "cushion" in order to assure themselves that there will always be enough moneyin the account.

Since mortgage lenders usually get to keep the interest on escrow accounts, in years pastmany of them maintained unreasonably large cushions. To deal with that, the Departmentof Housing and Urban Development (HUD) issued a ruling that placed a ceiling on thesize of escrow accounts, which in turn limited the amount the lender could ask the borrower to deposit at closing.

The rule is that the deposit cannot exceed the amount needed to prevent the balance fromfalling below an amount equal to two months worth of tax and insurance payments at itslowest point during the year. Although HUD does not do a lot of enforcement, all but ahandful of mortgage lenders follow the HUD rules.




How do I calculate the maximum initial deposit?Add the annual taxes and insurance premiums and divide by 12. This is the amount thatwill be added to your mortgage payment every month.List 12 months running down the page beginning with the month in which your firstmortgage payment is due.

In the second column, enter the tax and insurance payments next to the month in whichthey are due.

In the third column, show the amount in the escrow account assuming there is no initialdeposit. The monthly payments made by you add to the account while the tax andinsurance payments made by the lender reduce it.Scroll down to the month that has the largest shortfall. To the shortfall add two months of payments (the allowable cushion). The total is the maximum deposit under HUD's rules.

Here is an example:

Assuming no upfront deposit, the low point of the escrow account is reached in Augustwhen school taxes are due. Through August, total payments from the escrow account are$3468 whereas only 10 payments have been made into the account totaling $2890. Theaccount would therefore be short by two monthly payments, or by $578. The lender isalso allowed a cushion of two months, which is $578. Hence, the total required deposit tothe escrow account would be $1156.

Borrowers who don't want to be bothered checking the mortgage lender's calculation of the required escrow deposit are unlikely to be taken advantage of because lenders can't doit without violating the law. Focus your attention on the many legal ways that mortgagelenders and mortgage brokers can pick your pocket.

At the same time, unintentional mistakes do occur at the closing table that can affect theallocation of costs between sellers and buyers. A recent letter described a $500 mistake of this sort, which the letter-writer discovered by accident. It is a good idea, therefore, tocheck out every number.

What Everyone Should Know About Equal Housing

The sale and purchase of a home is one of the most significant events that an individualwill experience in their lifetime. It is more than the simple purchase of housing, for itdirectly impacts the hopes, dreams, aspirations, and economic destiny of those involved.For this reason, the Fair Housing Act and other federal and state laws were enacted toguarantee a right to a national housing market free from discrimination based on race,color, religion, sex, handicap, familial status, and national origin.

THE LAW

Civil Rights Act of 1866The Civil Rights Act of 1866 prohibits all racial discrimination in the sale or rental of property.




Fair Housing Act

The Fair Housing Act declares a national policy of fair housing throughout the UnitedStates. The law makes any discrimination in the sale, lease or rental of housing, or making housing otherwise unavailable, because of race, color, religion, sex, handicap,familial status, or national origin illegal.

Americans with Disabilities Act

Title III of the Americans with Disabilities Act prohibits discrimination against personswith disabilities in places of public accommodations and commercial facilities.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act makes discrimination unlawful with respect to anyaspect of a credit application on the basis of race, color, religion, national origin, sex,marital status, age or because all or part of the applicant's income derives from any publicassistance program.

State and Local LawsState and local laws often provide broader coverage and prohibit discrimination based onadditional classes not covered by federal law.

THE RESPOSIBILITIES

The home seller, the home seeker, and the real estate professional all have rights andresponsibilities under the law.

For the Home SellerAs a home seller or landlord you have a responsibility and a requirement under the lawnot to discriminate in the sale, rental and financing of property on the basis of race, color,religion, sex, handicap, familial status, or national origin. You cannot instruct thelicensed broker or salesperson acting as your agent to convey for you any limitations inthe sale or rental because the real estate professional is also bound by law not todiscriminate. Under the law, a home seller or landlord cannot establish discriminatoryterms or conditions in the purchase or rental, deny that housing is available, or advertisethat the property is available only to persons of a certain race, color, religion, sex,handicap, familial status, or national origin.

For the Home Seeker

You have the right to expect that housing will be available to you without discriminationor other limitations based on race, color, religion, sex handicap, familial status, or national origin.

This includes the right to expect:

• Housing in your price range made available to you without discrimination;

• Equal professional service;

• The opportunity to consider a broad range of housing choices;

• No discriminatory limitations on communities or locations of housing;




• No discrimination in the financing, appraising, or insuring of housing;

• Reasonable accommodations in rules, practices and procedures for persons withdisabilities;

• Non-discriminatory terms and conditions for the sale, rental, financing, or insuring of a dwelling;

• Freedom from harassment or intimidation for exercising your fair housing rights.

For the Real Estate ProfessionalAgents in a real estate transaction are prohibited by law from discriminating on the basisof race, color, religion, sex, handicap, familial status, or national origin. A request fromthe home seller or landlord to act in a discriminatory manner in the sale, lease or rentalcannot legally be fulfilled by the real estate professional.

Filing Discrimination ComplaintsComplaints alleging discrimination in housing may be filed with the nearest office of theUnited States Department of Housing and Urban Development (HUD) or by calling HUD

directly.

What Is a HUD Foreclosure Home?

In 1999, many things changed with regard to the way HUD sold homes as HUD movedtoward the privatization of its effort to sell its inventory of foreclosure homes. As a result,you can now find a list of HUD foreclosure homes on the internet, pick one out that youlike and buy it - right? Well, not exactly, but we will offer you some specific pointers for navigating the maze and the myths of HUD foreclosure homes.

How Does a Home Become a HUD Foreclosure Home?

First of all, you should know that a home becomes a HUD foreclosure home because

someone who had an FHA Insured loan defaulted on that loan and was foreclosed on bytheir mortgage lender. The mortgage lender, in turn, collects any losses they incurredfrom foreclosing from FHA (Federal Housing Administration). FHA is part of HUD(Housing and Urban Development). HUD, in turn, eventually gets the deed to theforeclosure home and offers the home for sale to the general public.

The reason mortgage lenders can recover their losses is that everyone—yes, everyone— who gets an FHA Insured loan pays what is called "mortgage insurance." These insurance premiums show up on your settlement sheet as an initial premium, which is usually addedto your loan amount. An additional monthly premium is then added as part of your mortgage payment. These premiums go into a fund to payoff mortgage lenders.

It takes 6-12 months for HUD to get the deed to a home so it can try to evaluate and sellthe foreclosure home. It takes the mortgage lender 3-6 months to complete theforeclosure buying process and another 3-6 months to get reimbursed by HUD in order for HUD to obtain and inspect the foreclosure home, appraise the foreclosure propertyand put it on the market. All the while the foreclosure home is usually vacant. The totaltimeframe could easily be 12-18 months from the date of foreclosure, but 8-12 months is




probably the norm. These factors contribute to the reasons that HUD sells foreclosureshomes strictly on an "as is" basis.

The Importance of a HUD Foreclosure Home Inspection

HUD foreclosure homes have typically been vacant for an extended period of time, often

without any utilities turned on. HUD is working with its private Marketing andManagement contractors (M&Ms) to come up with an efficient way of getting utilitiesturned on in a foreclosure home before the appraisal is completed and keeping things likesump pumps running through the process. Until recently, appraisers did not necessarilyhave the benefit of having gas and electric service. How could they give a reasonabledetermination of foreclosure home value without knowing if the plumbing, electric,heating and air conditioning are in working order? These procedures have been changingand resulting in better appraisals of foreclosure homes. However, foreclosure homeinspections should be conducted to see for yourself exactly what the condition of aforeclosure home is so that you go to the settlement knowing what to expect from theforeclosure home and what repairs will be needed.

Remember, HUD foreclosure homes are sold in "as is" condition. If the repairs neededexceed $5,000, HUD has a program to lend you the money called the FHA 203k RehabHUD Loan Program. This program is covered in further detail in “How Do I Buy aForeclosure?”

HUD wants you to use a real estate agent to assist you with submitting the appropriatecontracts and forms if your foreclosure home bid is accepted. You can find the HUD property list online at www.hud.gov . Take your time reading the screens and you will beable to select your state and view your particular listings. Many subscription sites offersthis same list of foreclosure homes and provides some easy-to-use bells and whistles, aswell as some other real estate content you will find very helpful in your search for a realestate agent or a mortgage lender who has experience working with HUD foreclosurehomes and FHA loan programs.

HUD Foreclosure Homes and Minimum Property StandardsIt is also important to understand the difference between Insured (IN), Uninsured (UI)and Insured with an escrow (IE) foreclosures. Briefly:

Insured means that the foreclosure home meets HUD's minimum property standards andhas been appraised for the stated value and your mortgage lender will not need a newappraisal (which saves you $400.00 on a new FHA appraisal!).

Insured with an escrow means that HUD's inspections and appraisals indicate that there isless than $5,000 in repairs needed for the foreclosure home to meet HUD's minimumforeclosure property standards. This is important because you need to know that theminimum foreclosure property standards are, in fact, very minimum. Do not give up onyour right to a home inspection just yet. First, take a look at the HUD minimumforeclosure property standards. You need to know that HUD expects you to complete therepairs to the foreclosure home and then get your mortgage lender to inspect and approve



the repairs before you can get the funds from the repair escrow. This means that you needto get someone to do the repairs that will wait to get paid when you do or you must layout the money and get reimbursed by your mortgage lender.

Uninsured properties require you to pay cash or get some kind of rehab loan. These

foreclosure homes need more than $5,000 in repairs (often $10,000 to $20,000 or more).HUD offers the FHA 203k Rehab HUD Loan, which works very well if the "team"helping you knows what they are doing. An experienced real estate agent, as well as amortgage lender experienced in the processing of FHA 203k HUD loans, will help saveyou time and money. The interest rates and the amount of HUD loan discount points isusually a little higher than a standard FHA loan, but you can often buy these foreclosurehomes significantly below market prices if you are willing to put up with the higher feesand the hassle of fixing them up.

This article addresses the basics of how a home becomes a HUD foreclosure home. Nowthat you have an understanding of the foreclosure home buying process, you need to

know what obstacles you must overcome to purchase a HUD foreclosure home. For detailed information

guide on buying foreclosure properties

Documents