Monday, July 21, 2008

Making an Offer on an REO - Part 2: Financing

Banks sell properties "as is, where is": They do not have any interest in replacing the rotted trim around the window or replacing shingles on the roof, both of which are common examples of things FHA and other government funding arrangements require. If a property is missing a stove, or has obvious structural deficiencies, it will not qualify for FHA financing. So, rather than tie a property up under contract with these types of loans, banks will sometimes reject offers with this type of financing.
Because banks understand the "credit crunch": They know that investors are having a hard time getting loans right now, as are other buyers who might be cash strapped. An ideal offer to most banks is a solid CASH offer with proof of funds to close. But, those are few and far between. Second runner up is a buyer who intends to occupy the property as a personal residence, and who has 20% or more to put down.
If you fall into one of these categories, you may find your offer will be accepted, EVEN IF IT IS LOWER, compared to an offer with multiple layers of government financing, & down payment assistance, or the investor who thinks they can put down just 10%. These loans are more likely to run into difficulties, therefore, banks will not accept them if they have a choice.
* Try to become a cash buyer - convert your assets into cash so that you can provide proof of funds.
* If you are a cash buyer, then to get your best deals, target properties that will not qualify for government funding.
Personal buyers:
This needs to remain about your lifestyle FIRST, and the financial investment second. Look at your finances, talk to a qualified lender who will help you assess your financial options. If you are one of those that require down payment assistance, and are purchasing with layered government financing, be patient. Getting a bank to agree will be tough. You might consider targeting traditional sales. If you are targeting REOs, then just know that you might need to put in a lot of offers before one is accepted. Banks ARE accepting these offers, but not as readily as they are accepting other offers.
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