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Shopping for Foreclosures? Secure Financing Early!

Shopping for Foreclosures? Secure Financing Early!

Jim Saccacio, RealtyTrac Chief Executive Officer

With interest rates ticking up and ARMs adjusting upward, experts predict an increase in the number of foreclosure properties on the market. Foreclosure properties are some of the best opportunities in real estate today with average savings of 10 to 30 percent of market value. Some properties offer savings of up to 50 percent or more!

There’s never been a better time to educate yourself about the foreclosures market and line up your resources, so that you’re ready to make a move when you find that ideal property.

Foreclosure Resource Articles

Learning about available properties has become much easier with Web-based services such as RealtyTrac, which gives consumers access to foreclosure and pre-foreclosure information that was previously available only to professional real estate brokers and investors. Today, homebuyers can use these services to identify and research potential home purchases, as well as to find the tools and professional resources they need to help them close the deal.

But while it’s one thing to look for property, few sellers will consider you to be a serious buyer unless you have your finances well in order. Buyers really need to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in a financial position to purchase the property, and is in the strongest possible position to negotiate. For pre-qualification, a loan officer will ask you a few questions concerning employment history and proposed collateral, and will ultimately provide you with a pre-qualification letter stating the amount you are pre-qualified to borrow.

Sales in this marketplace can move rather quickly, so it’s crucial to secure financing early. Generally, it’s best to work with a lender who understands the foreclosure process, and can guide you through certain steps, such as ensuring that a property is FHA-compliant. It should be noted that not all lenders finance foreclosure properties, so you may have to shop around a bit for a lender who does. This is yet another reason why pre-qualification early on is a good idea.

Determining How Much You Can Afford
Figuring out how much you can afford to spend doesn’t have to be difficult. Basically, how much you can afford is dictated by the amount of cash you have on hand plus the amount a lender is willing to loan you. There are two rules of thumb to keep in mind in this area. First, you can afford a home that is up to 2.5 times your annual gross income. Second, your monthly principal and interest payments should equal one-fourth of your gross pay, or one-third of your take-home pay.

Of course, this is dependent on your lender’s approval and your own comfort level. From the lender’s standpoint, your credit rating, income and related factors will determine how large a mortgage you can support. You will need to take a few more factors into consideration to establish your own comfort level with the mortgage amount. For example, if you are young and upwardly mobile, you may feel more comfortable stretching to afford a bigger home, knowing that eventually your increasing income will make the payments easier. On the other hand, if you’re older or plan on retiring soon, you may want a lower mortgage payment that won’t tie up as much of your income.

Types of Mortgages Available
There are basically three types of mortgages available: fixed-rate, adjustable-rate and hybrid.

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