first time home buyer, braden shares his adventure
Part 2 – Foreclosure
Braden has agreed to share his scariest thoughts/worries about home buying and taking on a mortgage. In this post we’ll touch on the idea of purchasing a foreclosure. We’ll follow him through this process, checking in along the way. It will be fun to capture his perspective, as a first time home buyer on this huge adventure.
mortgage qualifying Update
Since we last checked in there has been a change with regards to mortgage qualifying. The qualifying benchmark rate has changed from 5.14% to 5.34%. For Braden, this equates to a reduction of $7000 in what he qualifies for. Braden comments “the rate change doesn’t really affect me as I am not looking to spend what I am approved for”. Our post How Much should We Spend On Our First Home talks to some points to consider as a first time home buyer.
How are things going
Colleen: How is your search going? Are you seeing a good selection of options out there?
Braden: The search has slowed down for sure. I was really hoping more houses would pop up but it’s been quite slow lately. I am seeing a decent selection of houses but I’m wondering if I’m being too picky. Might be my lack of patience, haha.
Colleen: Patience is a good thing and the right property will come along. Typically what we see is more listings in June and July, as folks are thinking about pulling things together and getting settled before the kids go back to school – or the dreaded W word (winter) sets in. Take your time, the decision has to feel right.
what about a foreclosure
Braden: I do have my eye on a foreclosure that is listed. I’m back and forth on this and feel that I might miss out if I don’t put in at least a low offer.
Colleen: Foreclosures can be a great deal but they might also be an unopened can of worms!
A foreclosure comes with a certain amount of risk that as a buyer you must consider before making an offer. The most important point that all buyers must remember is that foreclosure properties are sold on an ‘as is where is’ basis without any of the usual warranties. Most sellers prefer to entertain an unconditional offer. Considering that the owner of the property had been in default, don’t be surprised to find the property in a rundown state.
Many foreclosed homes have sat vacant for a period of time. This can lead to maintenance issues. A home inspection will help you understand the costs associated with the purchase. The challenge, the seller may not want a home inspection completed before an offer is written, as unknown issues may be uncovered and then have to be disclosed with the sale. An inspection may cost between $400-$700 dollars and will give details on:
- The structure of the home – cracks in the foundation, condition of the roof, windows and chimney.
- Any mechanical problems such as electrical and plumbing.
- Condition of the appliances as well as the hot water heater or furnace
risks to be aware of
When you take possession the home may not be in the same condition as when you first viewed it and may not include any appliances. Unfortunately tenants (or previous owners) sometimes take their frustrations out on the property, and may also take advantage of the opportunity to sell appliances to generate cash flow.
Another risk is if it is tenant occupied, removing the tenants is your responsibility and may be a challenge. If you are watching a foreclosure it may be beneficial to wait until the previous owners (or tenants) have moved out. This might help avoid incurring any more costs associated with damages that may occur to the property.
As previously mentioned, sellers prefer unconditional offers however you also need to consider your preferences and liability. An unconditional offer means if the seller accepts it then you are the new owner, period. You must understand that even though you have been preapproved, the lender providing the mortgage must also accept the property. If you are purchasing with less than 20% down payment then the insurer will also have to approve the property. If either the lender or insurer decline the property, and an unconditional offer was written, you are holding the bag
Foreclosure properties can be tricky. We might suggest this is not the best opportunity for a first time home buyer, however if you have big shoulders and financial flexibility, we’ll do what we can to help make your dream come true.
Otherwise Braden, be patient the right place will present itself and the decision to write an offer will feel right.
Keep us posted! We’re excited to hear the next steps of your adventure.
Check back in a few weeks to hear how the house hunting is going.
If you have any questions feel free to reach out anytime.