If you’re looking to save money on purchasing a house, foreclosures are a great way to go. However, even if you find the property for free (which you can do on USHUD.com) there are still very costly mistakes that most people make when buying a foreclosure.
Foreclosure Buying Mistake #1: Taxes
It is unfortunate, but most people over pay on the transfer taxes of their foreclosure purchase. It is not a commonly known fact that most government foreclosures are exempt from paying transfer taxes, which in some states can be $5,000 or higher. Depending on your state the transfer taxes from Federal Government ownership to a private buyer (you) are waived.
The vast majority of lending companies do not know this because foreclosures typically represent such a small percentage of what they do on a daily basis. Even if they are aware of this fact there is a great chance that they may not apply what amounts to a small detail to them, which is a huge savings for you. While the actual savings depends on the state and county where the home is located be sure to remind your Real Estate agent, loan officer, and the title or escrow company of this rule.
Foreclosure Buying Mistake #2: Over Bidding
Over Bidding is a constant mistake made by those people who have not done their homework. Remember when you bid over the asking price for a home the existing appraisal can not be used, and a new appraisal is needed. Beyond an additional cost, this new appraisal can create problems all of its own. It is far better to bid the asking price or slightly less if you are not in a red hot market where properties are going under contract quickly.
Foreclosure Buying Mistake #3: Paying for an Appraisal
Paying for an appraisal is not necessary when buying a foreclosure from the entity which holds the foreclosure. For example, if you were to buy a HUD foreclosure, the appraisal that they have already paid for can be requested by the lender and used to finance the home. This is a $400 to $500 savings. By using the existing appraisal you can save time and not waste energy explaining to the new appraiser that the house is a foreclosure and that is why they can not reduce the value based on small cosmetic issues. In short ALWAYS use the FREE appraisal from either HUD or VA.
Foreclosure Buying Mistake #4: Not Getting the Most Out of a Home Inspection
If you are buying a foreclosure you always want to make sure you get a home inspection. This will let you know what sort of repairs will be required and if you are getting in over your head. This will also influence any repair escrow. The value of a home inspection can be increased if you meet the inspector at the house. Remember this inspector is working for you, since you pay them you should get what you want. The inspector needs to understand that the property is a foreclosure, and that they can help you by listing out the things that you would like to have fixed once you buy the home. This list can help you increase the escrow amount that HUD has offered for repairs.
Foreclosure Buying Mistake #5: Not Maximizing Your Investment
Not understanding how to make money buying a foreclosure is a missed opportunity! Because the house is a foreclosure the Federal Government will allow you to include most planned repairs into the mortgage amount. This leaves your money where it belongs….in your pocket.
So, when you meet with your Home Inspector, what you need to tell them is everything that you wish to have repaired. (It is best to make out a list before he arrives). When that list has been annotated by the Home Inspector, you can bring that list to HUD and show that they have under reported the problems with the home, and that these additional repairs must be included in the loan. This can increase the loan amount slightly but the home will be in the condition that YOU prefer.