Banks will only lend money on the value of the house “as-is” .  But if you are like me, you wouldn’t live in the “as-is” version of most of these bank-owned houses on the market.  And if you have to get FHA backing on your loan they will do an inspection and give a list of repairs that will have to be made before you can buy the house.  But the bank that owns the house won’t make any repairs.   By now you may be wondering how you can still get a good deal and still be able to make it our dream home.

There is an FHA loan program that could be your solution.  It’s called the 203(k).  This loan will give you the money to both buy the home and fix it up–all in one package.

The 203(k) loan is based on the value of the home after repairs are completed.  So part of the process is to line up a contractor who will submit a detailed proposal of the work to be completed and the cost of the project.  An appraiser then  looks at the house and the contractor’s proposal and determines whether the work will bring up the value to meet the program’s guidelines.

There are a select few real estate agents and lenders willing to work with these loans.  Many agents and lenders shy away from working with 203(k) loans because they require a lot of work.  But for those agents and lenders willing to work hard for their clients it is a great benefit for everyone.

If you want to consider looking for a good deal on a fixer-upper house, consider working with an agent experienced in rehab properties and the 203(k) loan process.

photo credit: TheTruthAbout…

“It’s always a good time to buy real estate.” It’s a Realtor’s® favorite line.  But if you talk to a true real estate professional he may tell you that it’s not a good time for you to buy real estate.  Owning your own home is part of the American Dream.  It’s a great way to build personal wealth.  And home ownership has a lot of intangible benefits as well.  But you need to be sure it’s the right decision for you now.

Here are a few things to consider when deciding whether to rent rather than buy.

Are you going to be in the house for only a short time?

If your job or life situation is likely to cause you to move in a couple of years then you might be better off renting.  Back in the real estate bubble you could expect the price of a house to go up enough to resell in a couple of years and you’d make some money on the equity increase.  But those days are gone and prices will probably stay flat for the foreseeable future.  Renting may be the smart choice because you can quickly make a transition to a new neighborhood or city.

Does it make financial sense to buy?

You can find rent vs. buy calculators online.  Keep in mind that most of these are put there by mortgage companies to sell you a loan.  Again, you are best to talk to a professional real estate agent who will give you the straight scoop for your situation.  One method you can use to get an idea of renting vs buying is to use the price to rent ratio.  You take the price of a home you’d try to buy and divide it by the amount of rent you pay for a year for a comparable home.  If the number is higher than the average of 15, you might be better off to rent.

Sometimes the intangibles will outweigh the financial part of renting.  When you rent you’re subject to the whim of the landlord about home improvements and painting.  So find a good Realtor® who will listen to what you want and will help you make a plan on how to get it done.

I got the privilege of working with Alisa & Devin to help them buy their first home.  They are getting married in a few months but decided to go ahead and purchase their first home together so they could take advantage of the tax credit.

They had a good idea of where they wanted to live and the kind of house they wanted.  We looked at a number of candidates and found one that was a good value.  After the offer and negotiations we went through the tense process of the appraisal and loan approval.  But in the end we got it done.

Congratulations Devin & Alisa, and may your new home be blessed.

The following is a guest post:

by Brandon Cornett

© 2009, Cornett Communications.

About the Author: Brandon Cornett is a consumer advocate and publisher of the Home Buying Institute. You may visit the author’s website at www.HomeBuyingInstitute.com to learn more about this topic.

photo credit: Aaron Gustafson

The tax credit clock is ticking for buyers.  To qualify, you will have to have a contract by the end of April 2010 & close by the end of June.  But I just read that the IRS just “clarified” the qualifications.  They said that a binding contract must be signed by all parties that need to authorize the sale. In the case of a short sale this could mean that even now it is too late.

Some lenders move to approve short sales at the speed of a dial-up modem.  A signed agreement today might take well past the end of April to be approved for a short sale.  You can read more on this subject by clicking HERE.

If you are looking to cash in on the tax credit, work with a realtor who can advise you on the realities of the market and get your home closed in a timely manner.

Disclaimer:  I’m not an attorney or tax adviser so these comments are not to be taken as legal or tax advice.

Termite damge to window frame

Termites can eat the equivalent of a two foot 2 x 4 in a year.  But they don’t eat all that wood in one place.  They leave paper thin remnants to use as a highway to the rest of the house.

A potential buyer told me about a house she had her eye on.  It was a foreclosure, so I went by to have a look.  The first thing that hit me when I opened the door was the odor of cat urine.  The carpets looked clean–perhaps they had been shampooed.  But whatever number of cats who had lived here previously didn’t see fit to use a litter box.  The pee was somewhere in the carpet, the pad, and probably the sub-floor.  If it’s in the sub-floor, even new carpet won’t help.  You have to strip out the carpet and pad, put an odor-killing sealer on the sub-floor, and then install new carpet.

The odor was severe, but treatable.  The rest of the house was in dire need of updating.  But could be fixed as well.  But if I were thinking of making an offer, it would be significantly less than the asking price.

But when I went outside I saw where the termites had been.  They had eaten the

Termite damage on siding.

siding and around a window frame.  It was more than just cosmetic damage here.  I saw the wall bowed a bit right under the window.  I’d seen termite damage like this before.  Long ago I set out to repair what looked to be a small amount of termite damage and ended up replacing all of the floor and 2 exterior walls in a living room.

If I were ever to buy a house that has termite damage, I would give myself a large margin for error when estimating repairs.  The problem with termites is that the damage is hidden.  You really don’t know what you are getting into until–well, until you get into it.  You have to start demolition before you know how far the damage goes.

With the amount of other good deals on the market, I’d much rather just go down the road and find a house that’s not at risk of being a money pit.

photo credit: etohaholic

It’s a buyer’s market in real estate.  We’ve been hearing this phrase for over a year now.  And it’s true.  If you’re a buyer, there are some good deals out there.  You’ve probably heard the stories of people buying wonderful homes for pennies on the dollar.  A few of those stories may even be true.  But they are the exception, not the rule.

Short sales and foreclosures can be a great deal for buyers.  And many buyers are tempted to give low-ball offers to get the house at a steal.  This might be an OK strategy if you’re buying investment property.  But if you’re looking for a place to live don’t let the lure of getting a killer deal make you forget what your goal is–to find a house you’ll love to live in.

In some Kansas City neighborhoods buyers are having to compete for homes.  Sometimes giving a low offer means losing out to another buyer.  I’ve heard of people offering $50K less on house after house until someone accepted the offer.  But what good is a screaming hot deal on a house that’s just so-so for meeting your needs.

Right now is probably one of the best buyer’s markets we’ve seen in a long time.  And “experts” say that we’re probably at the bottom.  The advantage to you as a buyer is a great selection of homes from which to choose.  Spend the time to find a home that you love.  And when you find it, negotiate a good deal.  But in the end, make sure you buy the home you love and not something less that’s a “great deal”.

You might think of this one as a “DUH” statement.  Well, hello Captain Obvious.  But you really do need to consider if it’s the right time for you to buy a house.  There are a lot of good reasons to buy your own home.  Building your personal wealth ranks right up there.  If you rent–you’re giving money to your landlord.  But there are sometimes good reasons not to buy.  If that’s you–stop reading now & go have a latte’.

If that’s not you, here are some good reasons to make the decision to buy your own home.

1. You’re mortgage payments may be less or equal to paying rent.
2. It’s always a good market for real estate.  Find a good deal in the short term and make sure you have the financial ability to hold it for the long run
3. You can still get low-down payment loans.
4. A less-than-stellar credit score won’t necessarily stop you from buying a home.
5. Have a plan to buy your first home now and then move up to your ultimate dream home.

2. Hire a good real estate agent.

You want to find a good deal–right?  But how can you tell if that two-bedroom bungalow is a bargain or whether you should get the three-bedroom ranch?  And what about that “diamond in the rough”?  Is it a steal, or will it be the “money pit”?  You’ll want a realtor who has the kind of experience to advise you about how to find true value in the real estate market.  Your buyer’s agent should do the following:

1. Educate you about the market.
2. Listen to your wants and needs.
3. Guide you to homes that are what you want.
4. Help to coordinate inspections and appraisals.
5. Negotiate on your behalf.
6. Check and double-check paperwork and deadlines.
7. Work to solve any problems that may arise.

3. Get together your financing.

It’s exciting to think about owning a home, but getting a mortgage can be intimidating.  Just as in finding a good realtor is important, so too is finding a mortgage professional.  You want to find someone who will take time to explain the process and listen to your concerns.  As a general rule you will follow this six-step process to securing the financing for your home.

Six steps to Financing a Home

1. Choose a loan officer (or mortgage specialist).
2. Make a loan application and get preapproved.
3. Determine what you want to pay and select a loan option.
4. Submit to the lender an accepted purchase offer contract.
5. Get an appraisal and title commitment.
6. Obtain funding at closing.

4. Matchmaker find me a home.

At this point you might think that you hop the the car and start house hunting.  It’s the ultimate shopping trip.  Probably the most expensive thing you’ll ever buy.  But like e-Harmony says in their ads–the perfect match is based on dimensions of compatibility not on random drive-bys.  There’s not many things worse than buying a house on emotion and then finding out it doesn’t really fit with your values and lifestyle.

You should ask yourself the following:

1. What things do I do that I want my home to be close to?
2. How much space do I need and why?
3. Is question #1 or question #2 more important?
4. Do I have the stamina, talents and/or money to buy a fixer-upper?
5. How long do I think I’ll live here?  Do I need to consider appreciation and/or resale value?
6. Do I think the neighborhood will continue to fit with my lifestyle for the time I plan to live here?
7. What are the “non-negotiable” things I want in a home?

5. Make an offer.

You’ll find a house you fall in love with.  This is it!  You want it.  But now you have to get your emotions under control and think as a businessperson.  Your buyer’s agent can help you balance your emotions with the reality of the market and the true value of your dream home.  You want to make a good offer that will get you the best deal.

There are three basic parts of an offer: price, contengencies, and terms.

Price – the right price to offer should fairly reflect the true market value of the home you want to buy.

Contingencies – these include such things as obtaining favorable financing or selling your existing home.

Terms – the other financial and timing factors that will be included in the offer.
Terms fall under these basic categories in a real estate offer:

1. Schedule – a schedule of events that has to happen before closing.
2. Conveyances – the items that stay with the house when the sellers leave.
3. Closing costs – who pays closing costs is negotiable, but if you want to roll the costs into the loan, you need to write that into the contract.
5. Home warranty – this covers repairs or replacement of appliances and major systems. You may ask the seller to pay for this.
6. Earnest money – this protects the sellers from the possibility of your unexpectedly pulling out of the deal and shows you are serious in your offer.

6. Perform due diligence.

Unlike most major purchases, once you buy a home, you can’t return it if something breaks or doesn’t quite work like it’s supposed to. That’s why home owner’s insurance and property inspections are so important.
A home owner’s insurance policy protects you in two ways:

1. Against loss or damage to the property itself
2. liability in case someone sustains an injury while on your property

The property inspection is to help you discover  issues a home might hide so you know exactly what you’re getting into before you sign your closing papers.

* Your major concern is structural damage.
* Don’t sweat the small stuff. Things that are easily fixed can be overlooked.
* If you have a big problem show up in your inspection report, you should bring in a specialist. If the worst-case scenario turns out to be true, you might want to walk away from the purchase.

7. Close the deal.

Before you close the lender will confirm the home’s value and legal standing, as well as your continued credit-worthiness. This entails a survey, appraisal, title search, and a final check of your credit and finances. Your buyers agent will keep you informed through this process, but your work is pretty much done.
You just have a few things to keep on top of:

1. Stay in control of your finances.  Don’t buy a boat or anything else that will ding your credit.
2. Return all phone calls and paperwork promptly.
3. Stay in touch with your agent.
4. Double-check your documentation several days before closing.
5. Obtain certified funds for closing.
6. Conduct a final walk-through.

On closing day you’ll sign a big pile of papers that will:

1. Finalize your mortgage.
2. Pay the seller.
3. Pay your closing costs.
4. Transfer the title from the seller to you.
5. Make arrangements to legally record the transaction as a public record.

It sounds like a lot to do, but with the help of your agent you’ll have the joy of getting the home you want.

8. Protect your investment.

You shouldn’t expect your real estate agent to abandon you after you move into your home.  A good agent will want to keep in touch with you and can be a good resource to help you find good people to keep your home in good shape.  Good realtors have a network of people in trade and service professions and should be eager to share these referrals with you.  If you ever receive a referral from your realtor in which you don’t receive top-notch service, let your realtor know your disappointment.  He should be an advocate to help you make the problem right.  He’ll also think twice about referring that business again.

Good realtors will also ask you to refer them to people you know who are buying or selling a home.  If you received good service you can be assured that your friends will appreciate your referral.

Protecting your investment also includes making sure routine maintenance and service is done on your home.  Even if you buy a brand new home, things wear out and deteriorate over time.  Your realtor can be a resource to advise you on how to maintain your home so that it keeps the maximum value.