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Bank Foreclosures for First-Time Buyers
Many first-time buyers overlook bank foreclosures, thinking professional investors will get the good property because they have more money for buying. In reality, first-time buyers often stand a better chance of acquiring the property, and getting it for a better price.
Bank foreclosures offer an opportunity for home ownership that first-time buyers may not find elsewhere. There are numerous advantages to buying bank foreclosures, as well as for being a first-time buyer, if the buyer is willing to use them.
When a first-time buyer looks at a bank foreclosure, they are deciding whether the home is what they want. The amount they are willing to bid depends on what they can afford and how badly they want the home. When an investor is looking at a bank foreclosure, they are looking at the potential profit in selling or renting the home. An investor’s bid is limited by the amount of profit that can be made.
First-time buyers are usually offered a lower interest rate on home loans than investors. An investor has to factor their interest rate into their bid because it has bearing on the profit potential. Consider this example:
A first-time buyer and an investor both get a home loan of 0,000. The first-time buyer receives an interest rate of 5.5%, while the investor has a rate of 7.5%. If both the first-time buyer and the investor paid off the loan within 90 days, the investor would pay ,874 in interest, while the first-time buyer would pay ,373 in interest.
Of course, the loan gets higher as the bid goes up. For the investor, the property would need to be sold in order to pay off the loan, which may take longer than 90 days. For the first-time buyer, the purchase is for the long-term, so the pay-off date is not the first factor to consider.
Many states also offer discounts on taxes for first-time buyers and/or the purchase of foreclosure homes. For the first-time buyer who is purchasing a bank foreclosure, this could translate to a significant discount. In Maryland, for example, the first-time buyer is exempt from paying transfer tax, which is 0 for every 0,000 of the purchase price. An investor is not exempt from this tax, and must factor it as an expense when calculating profit potential.
First-time buyers also have more lender options when purchasing a bank foreclosure. Many government agencies offer special loan programs for first-time buyers that are not available to investors.
Bank foreclosures are not always in perfect condition, so a first-time buyer needs to take the time to visit the property before buying. The amount of time, effort, and money required to make needed repairs should be a factor for any buyer when making a bid. Occasionally, the home will have an escrow account for repairs, and the money in the account will offset the buyer’s out-of-pocket expenses. Fortunately, repairs needed for bank foreclosures are usually minor, so the home continues to be a bargain for the first-time buyer, even if there is no escrow account.
Bank foreclosure property can often be obtained for less than the market value of the property, making it easier for a first-time buyer to find a home that is within their price range. This is especially true if the lender limits the amount a first-time buyer can borrow.
Overall, a first-time buyer has a distinct advantage over other buyers, and bank foreclosures can help them utilize those advantages to become first-time homeowners.
About the Author: Alex Diaz has written widely on foreclosure and real estate. Visit his website, Foreclosure Deals for information and Bank foreclosures