The Mortgage Blog

Check this out; many of the buyers I am talking to are looking for a “foreclosure”, because they want to “get a really great deal.” Well, I can understand the logic behind this thinking. All of the recent talk about high foreclosure rates combined with a slow real estate market would lead you to believe that there are some great deals out there on foreclosed homes. What’s the scoop?

The bottom line is this – aggressive mortgage lending has really taken the wind out of the sails of foreclosure buyers. Nearly every home that goes into foreclosure is mortgaged to the hilt and may in fact have loans that total more than the value of the property. Let’s face it folks, nobody that has a lot of equity in their home gets foreclosed on anymore. If you have equity, then there’s a lender somewhere that will loan you more money to get you out of trouble.

So, when the bank gets a house back after a foreclosure it has already incurred thousands of dollars in legal fees and probably has to spend some money to make the house presentable for marketing. There is not a lot of wiggle room on the sales price. Yea, says this foreclosure buyer, but they have to get rid of that thing, so I can get a deal on it, right? Not necessarily, you have to remember that the owner of the home is a gigantic bank with about a billion dollars in home loans on the books and they build in a reserve amount for expected losses on foreclosures. The bank’s balance sheet is so huge that the foreclosures are like a fly on their shoulder that goes unnoticed. They are not generally willing to lose a significant amount of money on these things. So if the equity in the property is zero or negative, then you may get lucky and be able to buy the house for a 5 – 15% discount to current market. That’s probably about as good as it gets and that’s not a great deal!

There are really better opportunities that go overlooked. One of these is estate sales. When a person dies, the surviving heirs are generally very motivated to sell the house and put the estate to rest. I have seen some of my clients get unbelievable deals from estate sales of homes.

Relocations also create good buying opportunities. When an employee is relocated to a new area sometimes a relocation company is employed to assist the employee. In some cases the Relo company will actually buy the house and then sell it themselves. They are generally motivated to sell the home quickly. I have seen some buyers get great deals on homes that were owned by relocation companies.

Another possibility is auctions. Recently there have been a couple of well know builders that have been forced to auction off a block of new homes to avoid a financial disaster. One of my own clients bought a home at auction in December for $195,000 that had been listed for sale in the mid 200’s and we appraised the house for $245,000 with a very conservative appraisal. This was also a builder model and he got all of the furnishings!! We didn’t even include that fact in the appraisal and the house probably had at least $25,000 in furnishings. This was a great deal!

Finally, a homeowner who has owned their home for a long time, bought it cheap, has a ton of equity and is motivated to sell is going to be way more flexible on price than a bank trying to get their loan money back on a foreclosure. Think about it – if you bought a house in 1985 for $125,000 and you only owe $75,000 on it now, and you sell it for $250,000 (even though you thought it was worth $300,000) you still doubled your money on this property. The buyer got it for $50,000 less than it will sell for when the market picks back up again. Look for sellers that have owned for a long time and have a lot of equity! If they are motivated you may get that great deal!

The bottom line is, in today’s world foreclosed homes don’t necessarily make for bargains. There are a number of other ways to find great deals out there if you put your thinking cap on, are patient, know what to look for and take your Realtor’s advice. Happy Hunting!

Real Estate Market improving?? If you listen to the doom and gloom crew you’d never know it! I have read so many articles in the last few months that exclaim - Last Person Out of Michigan Shut Off the Lights - I am about to explode.

In my office, we make residential mortgage loans in Michigan. Over the past 8 weeks we have been busier than we’ve been at any time in the last 18 months! Why? Homes ARE selling. I am getting a steady flow of new clients who have either identified a home they want to buy or want to get Pre-Approved to purchase a new house. People are finally realizing that this is a GREAT market to be a homebuyer and prices aren’t likely to get any lower. Why? There are a number of reasons: 1) Home Sales are up, 2) Auto company future brightens, 3) Buyers are realizing great values.

Home sales are up? Yes! The Detroit News reported on March 8 that residential home sales in Southeast Michigan rose 6.7% in February. Yes, they rose. According to the National Association of Realtors article dated March 13 – “Underlying trends point to a (national) housing recovery in 2007, but it will take a couple of months for us to get a better handle on it.”   A prominent local real estate office reported to me that they sold $30,000,000 in properties in the month of May.  Their best month in over 2 years!

Auto company future brightens? Really? According to the Detroit News article dated March 14, “General Motors sold 9.1 Million vehicles for record revenue of $207 billion, up from $195 billion in 2005. In the fourth quarter, GM earned $950 million on sales of 51.2 billion – its first quarterly profit since 2004.” What great news is that! Who would have guessed with nothing but bad news being reported for about 2 years straight? Contrary to popular opinion it seems that the auto industry is not dead.

Buyers are realizing great values! One of my clients bought a cute little house in Royal Oak last month for a mere $110,000, and the house did not need a lot of work. I haven’t seen a house like this sell that cheap in Royal Oak since about 2001. Higher-end homes can be had at even greater discounts. This is probably the best time to be a home buyer in Southeastern Michigan in the past 20 years.

So, for all of you who are sitting out there thinking your going to wait to buy a house because you believe prices are still coming down, get off your butt before things turn around and prices start rising. Once that starts to happen sellers are going to stick to their guns a lot more on sales price and a lot of these great deals are going to evaporate. Remember – “Buy low and Sell High.” There’s never been a better opportunity to buy low!