Monday, October 25, 2010

So you think you want a Fixer-Upper?

I know it has been a while since I last posted.  Been a very hectic couple of weeks.  Sometimes I think I just try to do too much at one time.  There is only so much a person can do when they multi-task.  The good news is that I am making head way on most of my endeavors!

I've been out showing a few houses and I've gotten a lot of inquiries into foreclosed homes or fixer-uppers so I thought I would explain a few things.  Many of these things are asked by my clients and therefore fuel for my blogs.  First of all, lets start with foreclosures.  There are few of these on the market these days.  We call these "bank-owned" homes.  Many of these have been abandoned by the previous homeowners long before they are put back on the market.  Most lenders will have the properties winterized and somewhat maintained during the listing periods however, the problem comes in the timing.  When a home goes into the foreclosure process, the homeowner is notified of the intent to foreclose.  The homeowner then has a certain period of time to pay the loan off or it goes to sale.  Once it has sold at auction, the homeowner still has a ninety day redemption period and a hundred and twenty days if there is another lien on the property.  This means he can stay in the home during this time.  Most homeowners leave during this period.  The lender cannot technically go in and do anything to the home until the redemption period is up and this can lead to problems within the home, especially if it is in the wintertime.

Because many homeowners have given up all hope in keeping the home, sometimes they literally take everything including the kitchen sink.  I've even seen some homes where the owners had taken the copper pipes to sell for scrap.  Sometimes, they have no funds to keep the house maintained and have let problems within the home escalate to become very costly repairs.  I have also seen where homeowners have not cared at all about the home and have torn up the walls, stairs, and appliances up.

Lenders are already at a loss on most of these and therefore will not put a whole lot back into the home.  They usually will try and sell it "as-is" after they get an appraisal on the home.  These homes will appraise for much less due to their condition, thus the GREAT buys for investors who can fix them up and re-sell them.  Not so great a buy for a first time homeowner however, unless they want to do a rehabilitation loan to fix them up.  And then, the loan amount is increased to cover the repairs and they are back up to where an average home is selling for.  So is a fixer-upper a good thing?  Not necessarily.

So let's talk about rehabilitation loans.  There are couple of different ways you can go with this. WCDA offers their Spruce Up program that allows the homeowner to borrow enough money to bring the home to good condition on top of the purchase price.  Before you can get this loan, a prospective lender would need to get an "as-repaired" appraisal to determine what the minimum requirements would be and then the buyer would need to get estimates from contractors for the work to be completed.  The minimum work would be $5,000 and $15,000 for the Spruce Up II program.  This program is the same as the FHA 203(k) program however is subject to income and purchase price limitations.  The 203(k) program is not.  Both are great rehabilitation programs for someone wanting to invest the time and work to fix up a home.

The one thing you must keep in mind is that a lender will not lend on a property that is not in average to good condition.  They will want the property to meet certain standards, therefore not all fixer-uppers are eligible for financing unless repaired.  What are the minimum standards for a lender?  They have to be in livable condition.  In other words, if the bathroom is not functional or the kitchen is tore apart, they will want it completed or repaired BEFORE closing unless you do the rehabilitation program.  They will not want chipped or peeling paint, the roof will need to be in average to good condition (no leaks), wiring and plumbing will need to be in good shape, just to name a few.  That's are getting the idea.  If you don't want to live in it yet, it is probably not finance-able.  Even if you think you can live in it, you'd better check with your lender before making an offer.  Let them know what the condition is and they will let you know what needs to be done.  Get inspections!  I cannot stress this enough.  Get inspections!  An inspector will tell you up front what is not working and what might need repaired.

So does this mean that a fixer-upper is not a good deal?  If you have a good down payment and can get financing, the fixer-upper property might be a GREAT deal, especially if you can do a lot of the work yourself.  You will not find a low to NO downpayment loan for a fixer-upper except for the rehabilitation loans.

Call me if you have any questions on this.  We have several properties on the market that could use a good repairman.  In the meantime, enjoy this wonderful fall weather *sarcastic* (I know it snowed, sleeted, hailed and rained today).  My dauchsies are sure enjoying staying nice and warm next to me!

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