Mortgage questions - buying a house (Bank owned/REO)

I've been shopping for a house for about 6 months now. I'm ready to pounce.

I'll try to keep this short. I have $68k cash, and my original search was for houses up to $55k. They aren't plentiful around here, but I was getting about one new result a day from my MLS search. If I wanted closer to Harrisburg (PA), I was getting a junk house, but a 15 mile radius found multiple that are squarely in the "livable but needs renovation" category. I have owned a house before and paid cash.

With mortgages so cheap these days (and with my credit being really excellent) I'm thinking about mortgages; pay X% in cash and borrow the rest. What should "X" be? One of the other issues I'm facing is that probably 75-80% of the properties I'm finding are Bank/REO. Does that basically disqualify it from loan status because no inspection?

Let me link to a couple properties for your perusal. (don't buy them out from under me or I will egg your house for eternity)

double-wide with big shop

Brick ranch with no garage

cheap hickville ranch with small garage

Nothing useful to add other than the first one looks awesome.

IIRC REO doesn't mean no inspection, it mainly seems to mean "you can find what you want but we're not going to fix it".

As to "what X should be" - banks and most credit unions don't seem to like small mortgage loans, even if they're almost risk free because you have a ton of equity in the house. I would talk to some local credit unions' mortgage loan specialists and see how high they put the bar.

I thought so too, Ian. I have nothing against double-wides, except that one really looks like a double-wide. I can probably spruce it up. Bigger deck, landscaping, etc.

I'm also trying to figure out if that one picture is inside the basement or the garage. If its the garage its a bummer that its two floors. Makes a lift kinda tough, but I might be able to take out 3/4 of the floor and make head room.

I also like that it has a wood stove. I have access to basically free firewood (labor not included).

BoxheadTim wrote: IIRC REO doesn't mean no inspection, it mainly seems to mean "you can find what you want but we're not going to fix it".

I was told that you don't get an inspection on a bank-owned; primarily because most buyers are flip/renovate types anyway, but also because they are designed to go quickly and no seller wants to wait. And I thought that a mortgage was contingent upon inspection. I asked my "agent" about inspections and he said I always can, its just that they go like hotcakes and I shouldn't drag my feet.

Kinda like going to buy a parts car and asking if your mechanic can look at it first.

I guess it depends if you're looking at buying a parts house...

Have you had a look on Zillow or similar to see if REOs really go like hot cakes where you live?

I guess it depends if you're looking at buying a parts house... Have you had a look on Zillow or similar to see if REOs really go like hot cakes where you live?

I'm looking for a 71 Riviera with no rust but maybe a broken window and a slipping transmission. Stuff that I can fix easily, but a good frame and body. That is to say, I don't mind renovations and maybe a roof patch, but no basket cases. Something I can live in while I put a polish on it.

They really do quickly, unfortunately. Seems like (around here) the magic number is $50k and one week. It doesn't seem to matter if the house is a bulldozer special, if it ticks the right boxes (certain amount of land, location, etc) someone buys it up in a couple days. I think there are buyers out there with a search that just pops up results, they look it over, and buy sight-unseen for development.

Most of the sub-$50k stuff around here is REO/bank, so that applies to most of my search results. I have since raised my search to $65k and probably half of the stuff between 50-65k is traditional sale.

I did look at one that went under contract between the time it was listed (10am) and when I got there to look at it (later that evening) but then was back on the market three weeks later. That makes me think a bot-buyer scooped it up and then actually went to look at it and backed out.

I'll try to be brief. Lotsa generalizations...

You probably won't get a mortgage on a double-wide, no matter how nice it is. You might get a chattel loan, but it is a depreciating asset/collateral and we typically get 50 cents on the dollar in foreclosure, which happens at 10x the rate of stick-built real estate. Bad business - most banks say 'no berkleying way".

As for HUD/bank-owned property, we'll do an appraisal but in order to approve a mortgage the property must be substantially ready to move-in, with only cosmetic challenges.

You can do whatever inspections you want, but suppose the HVAC is FUBAR? The seller/band is not going to fix it and the lender/bank won't lend unless it is fixed. Even if you are willing to accept the property as-is, too bad. Period.

And by the way, by the time you discover this your earnest money deposit is gone and ain't coming back.

Mortgage lenders want perfect loans. Perfect borrower AND perfect collateral. Don't get me started on why....

Thank you. I suppose some of that may not be an issue since there is no A/C. I think the only appliance in the whole place is a water heater. I have yet to look at these (that's tomorrow's plan) but they appear to be cosmetic-only.

Are you basically saying that all Bank/REO/HUD/double wide stuff is cash-only and buyer beware?

In reply to bludroptop:

I can't add anything to that.

What about paying cash and then getting a home equity loan? They're usually variable rate but much better rates than a primary mortgage and looser qualifying terms. I was quoted prime minus .5% on one recently.

You can get inspections on REO property but as has been covered the bank won't usually do repairs. Also I noticed in the double wide the plumbing fixtures are taped off; that usually means the water is off and they will not let you turn it on. You can do an "air test" to check for leaks by turning off all the stops and connecting a compressor to one of the stops then charging it with some air (20-30psi I think). A good plumber can do it but do NOT use a "book rate" plumber. I got a quote of $750 on that test but when I used my usual company it cost me $200 or so.

There are ways to make a double wide look better but they usually cost a lot. That may not be recoverable when you go to sell. In an area with double wides and $58k acre lots you can rapidly improve beyond what the neighborhood will support. I ended up with $125k in my first house that ended up selling for $85k. That was a rough start to adulthood.

I never expect repairs on bank-owned. I have had some success negotiating price based on repairs, though. I'm also not stuck on this one property. I have been casually searching and then this one happened to pop up with a nice garage and it kinda lit a fire under my bum.

The other thought I had was finishing the second floor of the garage as a living space (zoning-dependent of course) and renting out the house.

I have also given thought to buying property and building, but that doesn't seem to be a viable option financially. A nice piece of land is often just as expensive than the same land with a fixer-upper house. Kinda like how you can buy a T-boned camaro for $1500, but if you want to buy just an LS1 engine you're paying the same $1500.

curtis73 wrote: Are you basically saying that all Bank/REO/HUD/double wide stuff is cash-only and buyer beware?

Buyer beware? Always.

Double-wide? You might get what amounts to a car loan, but a 20 year old mobile home has a market value of... well, basically zero. Would you make a 30 year loan?

As for stick-built, I can't lend on a property that has no working heat, or functional kitchen/bath, or exposed wiring, or the list goes on to the point of silliness. I've seen properties deemed "unacceptable collateral" because of missing deck railings or cracked window panes. When

That's a nice area up there. I've got some friends right around the corner from one of your properties.

It's sickening that all of your house with the same amount of acreage would bring anywhere from 110k to 200k in their current condition in Flagstaff.

Depending on the particular piece of property, you might be able to get a mortgage based on the property itself as if the house wasn't there. So if you are looking at a $50k double wide on a nice lot the lot itself might be worth $25k and you could get $20k without PMI and kick in the rest yourself. Functionality it's the same as the first loan you get to buy property for a new construction. Typically those loans are written and termed with the intention of combining them with a building loan and converting them to conventional loans after the new house is built, but in your case those terms might also work for buying you time to fix up a place to minimum spec for a regular mortgage.

pheller wrote: That's a nice area up there. I've got some friends right around the corner from one of your properties. It's sickening that all of your house with the same amount of acreage would bring anywhere from 110k to 200k in their current condition in Flagstaff.

They would be over $300k here, maybe close to $400, and Harrisburg is 55 miles away. Crazy.

pheller wrote: It's sickening that all of your house with the same amount of acreage would bring anywhere from 110k to 200k in their current condition in Flagstaff.

Why is it sickening? The 3 most important things in real estate are location, location, and location.

If the market for these homes is competitive, paying cash can make your offer more appealing to a seller than having to secure financing. Cash sales tend to close sooner, and there's no chance that financing falls through.

I think the fees on such a loan wouldn't be worth it for the amount of money you would be borrowing. Any mortgage lender will charge you for an appraisal as well as a bunch of other fees, assuming they show any interest in a loan that small at all. You might also find yourself going through a lot of trouble just to get turned down. I agree with others that your best course of action would be to buy with cash and then go for a loan once you've fixed the place up.

A conventional mortgage wouldn't be subject to inspection, but some of the low-down-payment quasi-government loans are. When they are, the inspections are picayune and usually require a lot of repairs.

Duke wrote:

pheller wrote: It's sickening that all of your house with the same amount of acreage would bring anywhere from 110k to 200k in their current condition in Flagstaff.

Why is it sickening? The 3 most important things in real estate are location, location, and location.

Usually location is combination of good climate, lots of things to do, good schools and good job opportunities.

We've got lots of things to do. That's about it. We still get frigid temps and lots of snow. Our schools are sub-par. Jobs are laughable.

That's why its sickening. People are moving here for retirement and buying up property to rent to college students.

We bought a "short-sale" home not too far from where you're looking, just over the border in MD, about 2 years ago. Nothing about the mortgage was really unconventional, we put 10% down and financed the rest. The property was owned by a large national bank and we did have a home inspection, but it was for informational purposes only. Luckily the home didn't need major structural stuff- we'd been turned down for a mortgage on another property because the bank deemed it too risky with the repairs that were needed.

That said, the place we bought short-sale had no functioning heat, a few broken windows, and the water had been turned off for 2 years, so it was apparently a pretty low bar to meet. A realtor or inspector or someone from the bank should be able to clue you in to what they'll let fly.

Stay away from anything resembling a mobile home. Unlike "normal" homes, they actually depreciate in real value, as after 20 to 30 years they are essentially "used up". Our house was built in the 1850's.

As for your X% down, I'd stick with 20%, pretty conventional and will keep you out of PMI land. (We did 10% as cash was scarce- after IIRC 5 years of good payment history one can petition to have PMI removed) Money's still cheap- 4% and under with good credit. Plus that interest is tax deductible.

pheller wrote:

Duke wrote:

pheller wrote: It's sickening that all of your house with the same amount of acreage would bring anywhere from 110k to 200k in their current condition in Flagstaff.

Why is it sickening? The 3 most important things in real estate are location, location, and location.

Usually location is combination of good climate, lots of things to do, good schools and good job opportunities. We've got lots of things to do. That's about it. We still get frigid temps and lots of snow. Our schools are sub-par. Jobs are laughable. That's why its sickening. People are moving here for retirement and buying up property to rent to college students.

I am basically choosing a location based on NOT having much of the above. Schools are meh, jobs are just less than meh, climate sucks, and "lots to do" applies if you like tractor pulls and redneck bars.

But this property just 25 miles up the road in Carlisle would be $150k. In Camp Hill (15 miles away) it would be $250k. Over the mountain in Perry County it would be $40k. The market here makes no sense to me. All of these are bedroom communities within a 25 minute commute to Harrisburg but they are vastly different.

Truth is, I kinda hate this area. Its just that the job I got rocks my socks and I see no reason to rent when I can find properties in the $50k range and I have the cash.

The first thing to ask yourself is WHY was the property repossessed in the first place. In my part of the country it's always a property problem and not an owner problem. You always buy a home to sell. No, not to flip, but you need to keep in mind that you will need to sell it one day and even if you get a stinkin' deal you'll not want to give your buyer the same stinkin' deal.

The doublewide, probably was repo'd because it was a doublewide and Buyers could not get financing so it couldn't be sold. Financing of them isn't the same as for a stick built home because they don't "perform" the same way. By that I mean last as long or gain value the same way.

Under new laws, not rules, given to us by the Super Majority in 2010 (Dodd-Frank Act) lenders are no longer allowed to make the smaller loans. Well, you won't get the same deal or interest rate. Because one hand of the government said we are going to limit the amount of closing costs a Buyer can pay.

Unfortunately the other hand of the government at the same time was saying you have to do XXX things in a loan and closing and guess what the XXX exceeds the limit they put on the loans.

Bottom line is that most lenders won't do the small loans because they are afraid they will exceed the governmental limits of costs or that in trying to cover those costs your loan might become a "high cost loan".

Because these are now laws and not rules as they were in the past they can't be changed easily or quickly. It literally will take an act of Congress.

Also the penalties to the lenders are things like $50,000,000 fines and jail time so that means smaller loans and unusual properties might not be able to be financed which severely limits people's ability to buy and consequently values.

Around here a 1 acre parcel would be bought up along with the one next to it, then turned into 20-30 "single family homes" that are 6 feet apart from each other and sell for a million dollars each. That's what happened to the 2 acre parcel near my old house that used to have a tire store, body shop, etc on it.

The bay area is crazy.

curtis73 wrote: Truth is, I kinda hate this area. Its just that the job I got rocks my socks and I see no reason to rent when I can find properties in the $50k range and I have the cash.

You do have a pretty rad job, and you're somewhat closer to your parent, right? Those are pros. Maybe in the future you can take your job to the caribbean or something...