Financing Your Foreclosure
So you've found the right property, and you've already started dreaming about what you'll do with the place after you buy it. Now it's time to make an offer and figure out how you're going to pay for your new home. While the average foreclosure sells at more than 25 percent under the list price, keep in mind that this represents an average across the entire country. When deciding how much to offer for a bank-owned property, it's important to take a look at the condition and features of the house. Consider what type of repairs, if any, you'll need to perform to make it livable. Research similar properties in the area to get a feel for what they've sold for and what the home might be worth.
For the average property, CNN recommends making an initial offer of 10 to 20 percent below the list price. Keep in mind that the longer a foreclosure sits empty, the more money it costs the bank. If you spot a property that's been uninhabited for months or one that's in particularly poor condition, the bank may be willing to consider selling the home for more than 20 percent below the list price. By the same token, don't make a low-ball offer on a hot property in a great neighborhood and expect to have your proposal accepted.
When it comes to financing a foreclosure, many buyers go with standard mortgages. Be ready with a down payment of 5 to 20 percent, depending on how good your credit is and what your bank's requirements are. You may wish to hire a real estate agent to help you choose the right mortgage and hammer out a deal.
If you're purchasing a property that needs work or you simply can't manage a large down payment, special loan programs by the Federal Housing Authority, or FHA, might be just what you need. The FHA 203k loan requires just 3.5 percent down, and allows buyers to wrap up the cost of the property and the cost of repairs or renovation into a single loan. Fannie Mae offers a similar program called Home Path, which features a lower than average down payment and the ability to consolidate repairs and mortgage costs into one loan.