How to Mortgage a Foreclosure Home
Many buyers that are looking for more affordable options when it comes to a home look into the possibility of foreclosed properties. Some questions that arise when financing a foreclosure include: wondering if the home must be paid for in cash, if the home can only be purchased with a loan from the bank that now owns the home, and the ability to secure funding if the home is in disrepair.
The questions about financing a foreclosed home alone can discourage buyers from continuing to look into the option of purchasing a foreclosure when they don’t have a large sum of cash to put toward the purchase. There are actually several homes across the country in foreclosure or on a short sale that are purchased with mortgages every year.
Here are some mortgage options for purchasing foreclosed properties
Foreclosed homes are very often in need of repair. It can be tricky to obtain a conventional loan on a home that has been abandoned, damaged, or vandalized. Banks are reluctant to loan their money out for the purchase of a home with stolen plumbing or a missing furnace for instance. If they do entertain the possibility they will probably charge a higher fee for homeowner’s insurance due to the risk.
If you find a foreclosure that is in fairly good condition, a traditional conventional loan can still be an option. A bank can’t force a buyer to finance through them, but it could be beneficial to look into having a bank that owns a home finance the purchase.
If the home needs a lot of attention and repair to make it livable, a renovation loan may be a better option. This type of loan will include the purchase price of the home as well as the estimated construction repair cost into the loan. A popular loan program for this type of loan is the Fannie Mae HomeStyle renovation mortgage.
The HomeStyle mortgage requires buyers to have a credit score of at least 620. The higher your credit rating and income could allow you to put as little down on the home as 5%. Funds can be used for any type of work as long as it will be permanently affixed to the home and completed within the first year of ownership. A licensed contractor will need to put together a detailed estimated budget. An appraiser will be required to inspect the completed work.
FHA loans exist to help buyers that don’t qualify for conventional loans to get into a home. They are government-backed loans to help owner-occupants and are not an option for investing or flipping the home. These loans can be used on most types of home purchases including bank-owned homes and short sales. The federal backing of these loans allows buyers to relax requirements to a 500 credit score and a 10% down payment.
FHA 203(k) Renovation Loans
These are FHA loan programs specifically for financing renovations. There are two types: one for smaller projects called the Limited 203(k) and the FHA 203(k) Rehab Mortgage. The Limited mortgage allows you to add up to $35,000 for home repairs and the Rehab mortgage allows for a wide range of larger renovation projects. The Rehab loan does have more requirements like using an FHA-approved consultant. Rehab loans can be used on projects as big as demolishing and rebuilding as long as the original foundation is used.
For more information on foreclosure mortgage options in the Portland real estate market, contact us now.
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