Adjustable Rate Mortgages (ARM) and Your Foreclosure Home Purchase

Adjustable Rate Mortgages (ARM) and Your Foreclosure Home Purchase

If you qualify for the particular home you wish to purchase with a fixed interest rate, then you should choose the fixed rate mortgage 99% of the time. In this article you will learn why the ARM can be such a bad idea and how you can overcome the anxiety of your decision based upon the facts. Because current interest rates are so low—and have been that way for some time now—making a choice with regard to an adjustable rate mortgage versus a fixed rate mortgage is not difficult.

The recent and continued mortgage crisis can be directly attributed to the sub-prime mortgage meltdown and do a great degree the adjustable mortgages that were the flavor of the day in the real estate industry.

“You may be apprehensive about mortgage payments now, but once you get that raise you will be fine” That line of garbage was the kiss of death to many homebuyers in the past several years and will crop up again as “There is a sucker born every day” and an opportunistic snake in the grass ready to take advantage of the uninitiated around every corner.

Some quick and easy rules to follow are:

Never use an ARM for qualifying reasons. Never buy more than you can pay with your current income and never eat more than you can lift.

Do not be misled by the erroneous loan programs that abound in the market today. CDA loans and Farmers home loans are among the many other loan programs that simply will not work when purchasing a foreclosure home. In general terms, these loans are not good for much and specifically regarding foreclosure homes they are actually bad. The single reason that these loans are such a bad idea is that they are not compatible with the foreclosure homes, that you are interested in buying.

It is true that CDA promises a lower interest rate, as does the Farmers home loan program. However, because the wait for the funds can be 90 to 120 days, no government agency is willing to wait that long to remove the foreclosure home from their foreclosure home inventory. Additionally, the money is not guaranteed to be there when you are finally ready to purchase your foreclosure home.

Buying A Foreclosure With No Money Down

There are several ways to accomplish the purchase of buying homes without using any cash. this article is just a couple of way of doing it. Owner occupents are the focus as these tactics are available to investors.

Federal Housing Administration (FHA) foreclosure homes are different from any other type of foreclosure home in that there are several methods of buying a property utilizing low money down or no money down techniques. It is essential to first understand the several different ways in which the FHA lists the foreclosure homes that they are selling.

IN = Insured

IN indicates a foreclosure home that currently meets minimum property standards (MPS) and is currently in livable condition. These foreclosure homes are not currently available with no money down, but can be obtained with no money by applying these techniques.

Simply bid on the foreclosure home using an FHA 203b mortgage (as seen on the HUD contract) and then have the foreclosure home inspected. Be certain that you are with the home inspector and that the home inspector understands that you are interested in finding the deficiencies of the foreclosure home. Be sure the foreclosure home deficiencies are included in the necessary MPS items, including structural, heating and plumbing—paint and carpet will not be enough.

Send the foreclosure home inspection along with your request to include the necessary funds in the price you are paying for the foreclosure home. Repair funds requested must exactly meet the increase of the purchase price for the foreclosure home. Be sure that the amount requested is less than $5500 and that is approximately the three percent you were required to put down on the mortgage.

You could increase the amount of money received for repairs by applying for a 203k mortgage after the foreclosure home has been inspected. This raises the amount of funds received to a possible limit of 110% of the value of the foreclosure home after repair.

IE = Insured with Escrow

IE indicates a foreclosure home that requires some degree of repair in order to meet MPS. Additionally, IE foreclosure homes are not currently in livable condition. These foreclosure homes are not currently available with no money down but can be acquired with no money by applying these techniques.

Simply bid on the foreclosure home using an FHA 203b mortgage (as seen on the HUD contract) and then have the foreclosure home inspected. Be certain that you are with the home inspector and that the inspector understands that you are interested in finding the deficiencies of the foreclosure home. Be sure the foreclosure home deficiencies are included in the necessary MPS items, including structural, heating and plumbing—paint and carpet will not be enough.

Send the foreclosure home inspection along with your request to include the necessary funds in the price you are paying for the foreclosure home. Repair funds requested must exactly meet the increase of the purchase price for the foreclosure home. Be sure that the amount requested is less than $5500 and that is approximately the three percent you were required to put down on the mortgage.

You could increase the amount of money received for repairs to the foreclosure home by applying for a 203k mortgage after the foreclosure home has been inspected. This raises the amount of funds received to a possible limit of 110% of the value of the foreclosure home after repair.

UI = Uninsured

UI indicates a foreclosure home that requires repairs in order to meet FHA standards and that is currently not in livable condition. These foreclosure homes are available with low money down but can be obtained with no money down. It is even possible to buy these foreclosure homes and make a substantial profit if you apply the following techniques.

Simply bid on the foreclosure home using an FHA 203k repair mortgage (as seen on the HUD contract) and then have the foreclosure home inspected. Be certain that you are with the home inspector and that the inspector understands that you are interested in finding all of the deficiencies of the foreclosure home. Be sure that the foreclosure home deficiencies are included in the FHA minimums, including structural, heating and plumbing—paint and carpet will not be enough.

The home inspector will send the foreclosure home inspection to the mortgage lender along with the financial requirements to do all of the noted repairs. The inspector’s assessment of the repair cost can be adjusted up or down in order for you to get enough money to complete the repairs. Be sure to allocate enough so that you can break even on the purchase. If you have any need for additional cash, include a margin so that you can either add to your savings or pay some additional debt off. The maximum mortgage allowed is 110% of the value of the property after repairs. The bank generally frowns on this practice, but if you act as the general contractor and work on the foreclosure home yourself, you can pay yourself for the work performed.

Build Your Foreclosure Portfolio

The current real estate environment is ripe with potential issues that must be taken into consideration. Local real estate prices, mortgage worthiness and local economic and employment conditions are only some of the variables that an investor in foreclosures must take into account. If someone is just beginning to build their real estate portfolio, it is important to understand that decisions made now can and will affect financial flexibility later.

Suggested questions that buyers must ask themselves….and answer are:

  1. What are your short-term real estate investing goals (i.e., how many foreclosure homes the first year)?
  2. What are your revenue generation goals? Breaking even is not a goal that is called a mistake and should not be repeated.
  3. Am I willing to be a landlord? If no, collect stamps or buy lotto tickets.
  4. What is my credit like? If you need to improve your credit, start now!
  5. How much cash am I working with? If none, study Hard money
  6. What are long-term real estate investing goals? Don’t fire without aiming.

Be sure to ask yourself these questions before beginning your real estate investing and foreclosure portfolio. If you already have investment properties, you should still ask yourself these questions. Write your answers down and refer to this list before making any decisions with regard to purchasing your next foreclosure home. Do not be afraid to reassess your goals to be sure that your current actions are still on track with your long-term real estate investing goals.