Expert: Dennis Herman - 8/18/2009

Question
QUESTION: Mr. Herman, I would appreciate it immensely if you could give me some guidance in my purchasing a home that is bank-owned and is selling much lower than it is appraised.  I checked out the homes in the neighborhood and discovered that many of the homes in that area are in the $90s and 100s.  This particular home is selling for $50K.  I know that it needs tlc, but would it be a good purchase regardless of the work that will be done?  I have not seen the house, but I understand that it needs minor cosmetic work according to the realtor.  Again, I would greatly appreciate it if you could please respond asap as I will view the house today after noon.

ANSWER: It's great to see you gathering information like you are.  The best thing to do is call a Real estate agent to show you the property.  Do not call the listing agent but call another agent to represent you.  The listing agent will represent the seller.  It is a good idea to have an agent looking out for your interest.  As around for a referral.  I prefer Realty Executives offices, as they only hire experienced agents, most of whom work out of their onw home offices.  And I also work for Realty Executives.  

There are a lot of good deals out there.  A good agent can find you a list of homes to view.  Make sure you are pre qualified through a good lender.  Your agent may have some to suggest.  You will also need at least 3 to 5 percent for a down payment on the loan.  More is better when dealing with a bank as a seller.  

An agent may also have a list of contractors and inspectors.  You will want to have some idea of the total investment required to restore the home.

Your agent should give you a report showing the value of other homes in the area and the actual sale prices.  If you want to buy a foreclosed property try and choose a location where there are few foreclosed properties.  Otherwise this may be a problem, competing against bank owned properties when it come time to sell your home.



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QUESTION: I am not giving a down payment,but rather I was thinking of getting a home equity loan. Is this advisable or should I just wait to get enough for a down payment?

Answer
Ask your lender about the financial end of things.  They have to keep up on the ever changing lending rules and there have been a share this year.  

You can take out a home equity loan on a home you own, not on a home you are buying. If you already own a home and are buying a second home as an investment you may have to pay as much as 20% down.  If it will be your primary residence your down payment would be around 5%.  Check with your local lender on these figures.  

I hope this helps.