The 411 on Buying a ‘Distressed Property’

“Distressed properties,” meaning those that have been either taken back or are at risk of being taken back by lenders, aren’t as numerous as they were 10 years ago during the real estate meltdown. But they still do exist, and you may be interested in purchasing one.

Here’s why: While the term “distressed” may conjure up images of homes that are in poor – maybe even unlivable – conditions, this often isn’t the case. Many of these properties have been well- and in some cases meticulously maintained by their owners, who, for whatever reasons, are now unable to keep making the mortgage payments.

In the case where the property is in less than ideal condition, the lender may be offering it in “as is” condition.

This isn’t as scary as it sounds, in that you will still have the opportunity to get a home inspection, and then make a decision based on the results of that inspection.

Often the owners will still be living in the properties. In a short-sale situation, for example, the owners may be current on their mortgage payments, but expect that the payments will be more than they can afford once the rate on their adjustable-rate mortgage adjusts upward.

In this case, the owners work with their lender to sell the property before it gets to the point of foreclosure. They do this mainly to keep a foreclosure off their credit report, as this may cause a significant drop in their credit score.

One thing to keep in mind is that purchasing a distressed property may take longer to complete than a traditional sale, but that’s not always the case. What often determines how long the transition will take is the caseload of the seller’s lender, and how well-staffed the lender is to handle that case load.

If you are interested in buying a distressed property and want more information, contact your mortgage professional.

Down Payment Help Is Great but Be Sure to Read This First

Good news! You can use a gift of money to assist you in making a down payment toward your dream home. But while you don’t want to look this gift horse in the mouth, there are things to know before accepting.

Both Fannie Mae and FHA loan programs allow you to receive a gift as a down payment from a person related to you by blood, marriage, or adoption. (Yes, you can tap “the Bank of Mom and Dad!”)

However, the gift must be accompanied by documentation. The first such document is the gift letter. This shows that the gifted funds are being used to purchase a specific property, and that the donor does not expect you to repay the gift.

The second is proof that your donor is able to give the gift. This paper trail includes the source of the funds, such as a bank account statement demonstrating the donor has the money to give.

More important, it should show an average balance in the account over several recent months. This is to demonstrate to the lender that the funds were there and were not deposited from an undocumented source only to be withdrawn shortly after being given to you.

There may be other sources of down payment assistance, but it’s best to check with your mortgage pro before counting on them. One important point to note: your seller is not able to provide you with down payment assistance, although he or she can offer you seller credits toward your closing costs.