Pros and Cons of Purchasing a Foreclosure Auction Property

There are many properties being offered at foreclosure auctions across the nation right now. Some are good investments and others are not. The rule is the same for buying real estate no matter what type and where, do your due diligence. Check the prices in the area and make sure you know what you are getting into.

PROS

The major advantage of purchasing a foreclosure auction property is the deep discounted prices. By the time you go to the auction and start your bid, you better have done your homework and know the prices of comparable properties in that area. Otherwise, you may pay the price for a long time down the road for your mistake.

CONS

· Properties are sold as is.

· Generally you cannot inspect the property.

· No title insurance is available.

· If there is a tenant or owner still living on the property, you are responsible for having them evicted. However, if you are planning on holding on to the property for awhile and renting it, then you may be able to negotiate a lease with the current occupant.

· Must pay cash for the property in most instances at the end of the auction. Some states allow you to arrange for financing. Check with your state laws or an attorney first.

· May need court approval of the sale if you live in a judicial foreclosure state.

· Borrower may have right of redemption to pay the outstanding default amounts, attorney fees and costs and redeem the property leaving you with no ownership rights whatsoever and out of pocket costs. Check with an attorney regarding the redemption laws in your state.

· You may be overpaying if you get caught up in the excitement of a bidding war.

How to Purchase a Fannie Mae Foreclosure Property

Purchasing a Fannie Mae property in my opinion is the easiest and best way to go right now if you are looking for a foreclosure property. Fannie Mae is government run. Since the government is trying to get the home market jump started, it is much easier to deal with Fannie Mae than a REO (bank owned) property.

Finding a Fannie Mae Foreclosure

The easiest way to find a Fannie Mae foreclosure in your area is to visit their websitehttp://www.fanniemae.com/homepath/homebuyers/buying_fanniemaeowned.jhtml at. Fannie Mae offers Home Path financing which is special financing to buyers/investors that are purchasing Fannie Mae properties. Your credit score can be as low as 580 to qualify. To find a Home Path lender, click on the information on the Fannie Mae website to find one in your area, or check with your own lender to see if they offer Home Path or other Fannie Mae financing.

If you are working with a Realtor, the Realtor can check the MLS for you to see if there are any Fannie Mae foreclosure properties in your area. All Fannie Mae properties are listed with Realtors, and you must make your offer through a Realtor.

Pre-Qualification Letter

Fannie Mae requires a pre-qualification letter to accompany all offers because they want to make sure that the borrower is qualified and can close the transaction. You are free to choose whatever type of loan you want, and do not have to go with the Home Path or other Fannie Mae Financing.

Repairs on Fannie Mae Properties

Some properties may need repairs and all properties are sold in an “as is” condition. You have the right to make an inspection and if there are major repairs, you have the option of cancelling the contract.

Earnest Money Deposits

Fannie Mae requires a 10% earnest money deposit if you are buying the property as an investment, and a 5% earnest money deposit if you are buying it as your primary residence.

Closing Costs

Fannie Mae may pay up to 2% of your closing costs so be sure to ask for that in your offer. Fannie may is exempt from paying documentary stamps or transfer taxes so be prepared to pay those costs. For instance, in Florida, the documentary stamps are .70 per $100 so on a $100,000 property, your doc stamps will be $700.00. you will need to check what the transfer taxes are in your area. Either the Realtor can tell you or the title company. You must use the title company selected by Fannie Mae. You are able to obtain title insurance on the properties.

Responsive to Your Offer

My experience with Fannie Mae has been good. They are responsive and willing to negotiate as long as you come in with an offer within reason to the listing price.