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Buying Foreclosures And Short Sales
Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction
When purchasing a foreclosure, short sale or new construction home in Cape Cod it is important to understand they each have their own unique factors that can affect financing.
If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or, worst case scenario, a denied loan.
Having an open line of communication with your mortgage professional will help you successfully navigate through the purchase process.
Short Sales & Foreclosures
Currently, short sales and foreclosures are everywhere. They often represent great value when looking to buy a new home.
However, they also present a unique set of problems that home buyers need to be aware of and plan for.
1.) Property Condition
Typically, when homeowners are facing foreclosure or looking to short sell their house, it means they lack the financial means to pay the mortgage or maintain the property.
A property in poor health can cause many financing issues for traditional financing. FHA loans have specific rules requiring that the property is move-in-ready condition, unless you’re using a 203(k) Rehab Loan.
2.) Timing Challenges
Foreclosures can take longer to get an executed purchase contract due to the seller is a bank and the paperwork must go through appropriate channels for approval. For the same reason, it is important your lender has loan documents ready a few days early for closing to ensure everything is approved and closes by the agreed to deadline.
Short sales typically come with awkward timeframes for purchase contract approval and loan closing. Each bank is different, but approval can take anywhere between a week to 120 days. As a general rule, the larger the bank the longer it takes to get short sale approval.
The lack of a set time frame for short sale approval makes the timing of loan submission, rate locks and closing very challenging. You have your approval conditions cleared to close on time, just to find out that new appraisals, income, employment and asset verifications need to be updated by an underwriter to cover the most recent 30 days.
Worst case, purchase contracts and legal documents may have to be re-submitted to a bank for an updated approval.
Either way, be prepared for a lot of redundant paperwork when purchasing a short sale property.
New Construction
Home buyers looking to purchase new construction using FHA financing will have more hoops to jump through than those purchasing through conventional (Fannie Mae / Freddie Mac) financing.
If you want to use FHA financing to purchase new construction then you need to be aware of a number of issues that can trip you up.
First, you MUST have a certificate of occupancy (C.O.) certifying that the property is complete and move-in-ready. If you do not have this then you typically CANNOT go FHA. You’ll need a renovation loan, but a FHA 203K WILL NOT work.
You’ll need to employ the Fannie Mae Home Style for a property without a C.O.
In addition to the C.O. you’ll need some combination of the following documents as dictated by your lender and your unique situation:
- Builder’s Certification
- One Year Builder Warranty (10 YR Warranty may be required)
- Termite Inspection (when applicable)
- Septic Inspection (when applicable)
- Well Test (when applicable)
- Construction Permits
There are a number of factors which go into exactly what combination of documentation will be required to satisfy your lender and FHA, so it is best to work with an experienced loan officer when purchasing new construction with FHA Financing.
