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Lower interest rates over the past few years produced a record number of home loans in the United States. Competition in the home financing industry made it easy to find a lender in hot real estate markets. With home prices leveling off and the job market cooling in some regions, more consumers with interest-only home loans are facing foreclosure.
Typically, adjustable rate mortgages (ARMs) offer lower interest rates on higher credit lines than other home loans.
These low rates are tied to the prime lending rate set by the Federal Reserve Board.
Historically low rates have allowed many borrowers to compare mortgage offers and get home financing that they couldn’t have afforded ten years ago.
Foreclosures Rise Along With ARM Rates
However, as lower interest rates disappear, some borrowers struggle to find room in their budgets to pay their higher home loan payments. Interest rates on ARMs have risen more than three full percentage points since their recent historic low of 3.25 percent. As monthly minimum payments due on these loans rise faster than wages, the national number of high-risk home loans in delinquency has risen above three percent for the first time in years.
However, as lower interest rates disappear, some borrowers struggle to find room in their budgets to pay their higher home loan payments. Interest rates on ARMs have risen more than three full percentage points since their recent historic low of 3.25 percent. As monthly minimum payments due on these loans rise faster than wages, the national number of high-risk home loans in delinquency has risen above three percent for the first time in years.
Advantages of Buying a Foreclosed Home
This trend has created opportunity for you to find a lender and purchase more house than you might otherwise afford. Many banks and government agencies sell or auction foreclosed homes for a fraction of their market value and many lenders sell properties cheaply or even offer a lower interest rate to recover the remaining credit line.
This trend has created opportunity for you to find a lender and purchase more house than you might otherwise afford. Many banks and government agencies sell or auction foreclosed homes for a fraction of their market value and many lenders sell properties cheaply or even offer a lower interest rate to recover the remaining credit line.
By purchasing foreclosed homes directly, most buyers avoid other typical costs like closing costs and private mortgage insurance.
Even if you have bad credit, you can usually find a lender that will be willing to extend home financing on a foreclosure, especially if you can buy the property at a price below market value.
Disadvantages of Buying a Foreclosed Home
Although buying a foreclosed home may have economic benefits, there are some potential risks. First, the urgency of some deals may not give you enough time to compare mortgage rates among lenders. If possible, try to get pre-qualified for a loan. Also, depending on where you live, you may be required to place a bid for a foreclosure before you can inspect the property. Because property owners are losing their homes to their lending agencies, you might have to deal with some people who are unpleasant or have vandalized their homes out of spite. If you suspect that the home has been vandalized, you'll want a proper inspection.
Although buying a foreclosed home may have economic benefits, there are some potential risks. First, the urgency of some deals may not give you enough time to compare mortgage rates among lenders. If possible, try to get pre-qualified for a loan. Also, depending on where you live, you may be required to place a bid for a foreclosure before you can inspect the property. Because property owners are losing their homes to their lending agencies, you might have to deal with some people who are unpleasant or have vandalized their homes out of spite. If you suspect that the home has been vandalized, you'll want a proper inspection.
Avoid These Foreclosure Pitfalls
Carefully review the tax records for liens against your chosen property. A homeowner in foreclosure may have other credit lines or contractor bills tied to the property. Likewise, look at the home sale data for other properties in the neighborhood. If prices are falling or a great number of homes are for sale, the area could suffer from a mortgage fraud scheme or an environmental hazard. Find out if the previous homeowners deliberately surrendered a problem property.
Carefully review the tax records for liens against your chosen property. A homeowner in foreclosure may have other credit lines or contractor bills tied to the property. Likewise, look at the home sale data for other properties in the neighborhood. If prices are falling or a great number of homes are for sale, the area could suffer from a mortgage fraud scheme or an environmental hazard. Find out if the previous homeowners deliberately surrendered a problem property.
How to Find a Foreclosed Home
Try shopping for homes that have not yet been publicized or placed for public sale. Asking your own home financing representative about potential foreclosure sales often uncovers the best leads.
Try shopping for homes that have not yet been publicized or placed for public sale. Asking your own home financing representative about potential foreclosure sales often uncovers the best leads.
Best Strategies for Buying a Foreclosure
- Team up with an experienced buyer’s agent before searching for foreclosure deals.
- Find a lender who can pre-approve your deal. Knowing your credit line can prevent your own delinquent home loan.
- Review all tax records, maintenance records, and police records for the property to be sure that you’re not purchasing damaged goods.
Purchasing a foreclosed home involves a certain about of due diligence.
But there are definite advantages because lenders would rather not be in the home-selling and buying business.
With an experienced agent and some patience, you could find yourself with a bigger or newer house than you thought was in your future.
Sources
CBS 13 New York
Federal Reserve System
HSH Associates
KTHV-TV
Pueblo Chieftain Online
Wall Street Journal
CBS 13 New York
Federal Reserve System
HSH Associates
KTHV-TV
Pueblo Chieftain Online
Wall Street Journal
Joe Taylor Jr. holds a Bachelor of Science in Communications from Ithaca College. He also coaches adults who want to shift their careers.
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