The only issue with first timer homebuyers purchasing REO's (Real Estate Owned) or bank owned foreclosed properties is the CONDITION of the property! I can't tell you how many times we've had offers presented on properties which just won't pass muster with an FHA appraiser! I have a REO listing now which has mold, obvious dry-rot in numerous places and a master bedroom shower with damage which will be screaming red flags for a FHA appraiser. They will NOT approve the property for an FHA loan! The appraiser will want the damage either removed or call for further inspection. Most Assett Managers, based on their agents reccomendations, will NOT allow a property to be tied up with an FHA inspection process.
So though you CAN use both CalFHA and/or FHA and even VA, just beware you need a pretty clean property to achieve this. Recently the Countrywide REO's are going to be allowed "hold-back" for repairs. But some of these properties are beyond that! Just be a smart, savvy buyer and don't try to make a silk purse out of an REO pig's ear!

Maybe yes and maybe no. It all depends on the condition of the property. With FHA loans, the properties have to be habitable and finance-able. Many of the REO's that I have seen are neither and will NOT qualify.

If there is no floor covering, or the copper pipes have been ripped out and/or the cabinets/plumbing/whatever are trashed/destroyed/stolen, you probably won't get a loan. (Unless you can be real creative with a contractor who will do repairs almost simultaneously with closing and/or wait to get paid.)

Or you can pay for work to be done prior to closing but it is very risky and I don't recommend it.

Many people whose homes have been foreclosed on are very upset and what they don’t destroy or steal, the vandals and crack addicts will.

In my opinion, you are better off buying a short sale or a closeout of a new building. If you really want an REO, most of the foreclosed condos in this City are in better condition and better locations than single-family houses. (For example, there are some great deals on some Civic Center and SOMA condos currently—REO’s, short sales and brand-new.)

Get qualified with a lender and find out exactly what the criteria are for the house to qualify for a loan before you start looking.

I have had several transactions fall out of escrow recently due to loan problems--some relating to the condition of the property.

Go in with your eyes wide open!!

Hi Daren,

There isn't anything about the fact that a property has been foreclosed that would limit your financing options. Both you and the property have to be underwritten by the otherwise normal standards, but that a property has been foreclosed doesn't by itself have any influence. Your occupancy intentions as well as the property's condition are both factors that influence these loans, though. I'm happy to make mortgage referrals, too, if you need one. Best to speak to a CalHFA and HFA approved broker.

Good luck - there are some great values out there. Especially in the East Bay. I noticed pre-approved short sale condo in Antioch priced at $40,000. Tenants recently paid $1,200 per month. With the new foreclosure requirements here in CA, I think we're going to see greater efforts from certain lenders to accommodate short sales and avoid foreclosure.

Jason Chapin
Urban Bay Properties
415-420-1143
jchapin@ubayp.com

Hello Daren, you can buy an "REO" property. That is a home that was foreclosed and is now owned by the bank.

You need to talk with a mortgage banker, someone who knows FHA loans well. Not all mortgage people know these products.

After meeting with someone, you will know if you qualify and for how much. Once you have that info, it's time to find a home.

If you need a referral to a couple of loan brokers and bankers, please feel free to call or email.

Regards,

Dave Tap Tapper
415-370-7195
redt4u@aol.com