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Thursday, March 22, 2007

Are Foreclosures Really Worth It?

That's the question on everyone's lips these days. Sure, there are a whole lot of people that are in trouble, who can't afford to make their monthly payments, creating innumerable short sales and even more foreclosures. But just because someone else is in financial trouble doesn't make it a great time to buy. It has to make financial and emotional sense to you as a buyer to be able to "cut a deal" in this market.

If you are a first-time homebuyer, this is a decent time to be buying. Just remember the thre most important pitfalls to save yourself some stress if you decide to delve into the foreclosure market.

Pitfall #1: Expecting things to go smoothly and in a given timeline. Pre-foreclosure purchases have no timeline. If the bank has to approve a sale (typically because the seller's loan on the home is more than the market value of the property) they have no timeline to work with. Which means you will have to deal with frustration while you wait and no realtor can push the loss mitigation department of any mortgage company.

Pitfall #2: Bad Credit History. After the recent subprime mortgage meltdown, good credit is more important than ever. With mortgage companies facing so many foreclosures, they will not be jumping up and down to give you a loan for 100% of the purchase price unless you can show a history of paying your bills on time. Get your FICO score and make sure it stays in the 700s. Some seller's mortgage companies will also require you to get preapproved with them even though you may use a different mortgage company.

Pitfall #3: Not getting a Property Inspection. Both pre-foreclosure and foreclosure homes may have damage due to lack of care or malicious elements once the home was put on the market. A termite inspection may not reveal all the flaws. A property inspection and possibly roof inspection is your best bet. If you don't have the reserves to make the repairs, don't buy the home. You can only live with a leaking roof for so long.

But don't let me scare you. Our first home was a foreclosure. Many dollars later, it is a dependable rental. Remember, you make money when you buy, not when you sell.

This is a market to make some serious money!

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