What are the pros and cons of a first time home buyer buying a foreclosure or preforclosure?

Asked by sunnygirl104, Palm Beach Gardens, FL Thu Aug 16, 2012

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Trevor Curran, Mortgage Broker Or Lender, Great Neck, NY
Sat Aug 25, 2012
Good afternoon sunnygirl104,

I've been helping First Time Buyers for 22 years as a mortgage professional and I will tell you what I have always told my clients here in New York: If you are a First Time Buyer, steer clear of foreclosures and short sales.

Foreclosures are someone else's headache. The home probably has not been well-maintained and you're a First Time Buyer adjusting to paying a mortgage. Do you really want to walk in the door to someone else's deferred maintenance that YOU will have to pay for? Also, if you're thinking there are deals to be had in terms of lower prices, mostly those "deals" go to professional investors who can pay cash, negotiate hard with a Lender, and close fast.

For Short Sales, my attitude of late is that First Time Buyers should steer clear. Short Sales tend to be a better deal for the homeowner than for the Buyer. You'll wait MONTHS for the homeowner's Lender to approve the short sale; maybe as long as Six or Seven Months. Meanwhile, you're stuck in a contract to buy that home. I closed a short sale recently with a Buyer who, after seven months said this at the closing table, "I don't even want this house anymore."

And he didn't even get the "deal" on price he thought he was getting! The house appraised for only slightly more than he paid for it at the short sale price. He walked into this deal thinking he was buying a home for $100,000 less than it's value. In the end that wasn't the case.

There are plenty of motivated Sellers with their homes listed on your local MLS. Go find a good Local Mortgage Banker, get prequalified, then find a great, experienced Realtor, and buy the home you want at the price you're willing to pay. It's a Buyer's Market, after all!

Trevor Curran
NMLS #40140
0 votes
J Robert Gam…, Agent, Palm Beach Gardens, FL
Thu Aug 23, 2012
Dear Sunnygirl,
Buying a bank owned property or a short sale can be a difficult proposition, especially for a first time home buyer. If your reason for going after distressed property is to get a good deal, they are few and far between as these homes are usually bidden up by the competition. Short sales are hit or miss depending on the lender, who is processing the paperwork. Even though banks are more responsive , you still looking at 2 to 4 months if lender approves your offer.
In today's market you need to have all your ducks in a row and be ready to pull the trigger if you find the right home, as inventory is low and homes are moving very quickly. I have a first time home buyer report that will help anyone buying a home for the first time, including how to get down payment assistance in Florida. Contrary to popular belief, income limits can go as high as $101,220.00 combined yearly income for a 4 person household in Palm Beach county.

Send me an email to JRG@Jrgamboa.com and I'll send you the first time home buyer report.

J Robert Gamboa
Keyes Company Realtors
0 votes
Kathy Fox, , 34997
Sun Aug 19, 2012
Dear Sunny Girl,
I love your email name :)

After having worked with many first time home buyers, this is what I have found concerning the pros and cons of going after foreclosures and short sales.

Foreclosures are usually priced at the amount the owner expects to receive. Most buyers think they can offer almost nothing and be able to buy the home. Not so if the owner has done a comp of recent sales in the area for homes of that type and condition.

Not all foreclosures are in terrible condition but they almost always need some tlc . Sometimes they are in good enough shape to move into and work on while living there.

Often 1st time home buyers are not aware that these foreclosures are often snatched up by investors able to pay cash for them. Sometimes first time home buyers think they have a lot of time to make a decision and lose a home they wanted.

Short sales can be tricky.

Normally a realtor that has listed the home will reduce the home price to under comparable properties in the area. If an offer is made that is way below thecomps the bank is likely to not approve the offer price and counter with a price that is higher than the list price. This can be a terrible waste of time for the buyer since it can take several months for the bank to give an answer to the offer price.

You can get a very good deal with both foreclosures and short sales but it is important to have a realtor that is willing to help you do your homework when preparing to make an offer.

Call me anytime if you would like to discuss this further.

Kathy Fox
Realty Associates Florida Properties
0 votes
Dear Ms. Fox,
Thank you for your reply (and compliment).
I am surprised to hear that most foreclosures in this uncommon market are in disrepair. I have many friends who love their homes and take good care of them, yet
they are drowning financially and thus are in foreclosure. It seems this uncommon market has targeted even the responsible homeowner. Please elaborate more regarding the "tlc" required for most foreclosures.
Kindest regards,
Flag Sun Aug 19, 2012
Tom Priester, Agent, Tequesta, FL
Sun Aug 19, 2012
Dear Sunnygirl,

Each property is different and the local real estate market has been amazingly strong but is constantly changing. You need to carefully evaluate every property on it's own merits and make sure you have complete information to make a knowledgable decision. More often that not in today's market bank owned foreclosures can be in poor condition and not the best values out there. Short sales tend to require much patience but can offer great deals if you play the game right.

The best thing you can do is clearly define your housing objectives and determine what areas will meet your needs. Inventory levels are very low and finding homes is a much more difficult task than it was a few month ago. If you would like to further discuss your particular situation and put together a game plan to meet your goals please feel free to contact me at your convenience for a complimentary consolation.

Best of luck and if I can offer anything additional please let me know.

Tom Priester e-PRO
"Results Driven Real Estate"

Keller Williams Realty
561 308-0175
0 votes
Bob Clark, Agent, Auburn, NH
Thu Aug 16, 2012
The Pros are...

Could get a great deal
Banks are willing to negotiate
Cash is King if you have it


Can be difficult to purchase there are usually many steps to an offer
Usually they are As/is and funding is tough for first time home buyers
You most likely will need some kind of rehab loan
You will be competing with investors on offers
0 votes
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