The buyer's market may have just got better for you.
To pare down their growing inventory of properties, Fannie Mae and Freddie Mac are scrambling to unload nearly 150,000 foreclosed homes. And that means 2004-esque deals – like requiring as little as 3% down, offering to pay a portion of the closing costs and arranging special financing and warranties for repairs and renovations.
It's another option for home owners who want to trade up -- and an easier way into the market for first-time home buyers, says Dean Baker, co-director of the Center for Economic and Policy Research who studies the housing market.
The downside: Angry neighbors. Many realtors say these types of listings are devaluing nearby properties. They state that in some areas where Freddie and Fannie homes are on the market, buyers could find a better deal on a nearby market-rate home that doesn't require repairs, he says.
Buying a Fannie or Freddie home can be more complex than pursuing an open-market real estate listing — or even a commercial bank foreclosed property. There’s a smaller selection of appealing and those tend to sell the fastest. And there's little room to negotiate price.
"Our goal is to recover as much as we can to offset our loss and not to be low balling properties just to move them,” says a Freddie Mac spokesman. “We absolutely have no motivation to be leading a downward spiral in home prices.”
The three best features of Fannie and Freddie foreclosures that may make digging for these deals worthwhile:
1. Small down payment
For its foreclosed properties, Fannie Mae will accept down payments as low as 3% on 30-year mortgages at the same interest rates banks are currently offering. And Fannie Mae doesn’t require private mortgage insurance. Compared to a typical bank mortgage, which requires 10% down, plus PMI for buyers with less than 20%, that’s a huge savings – an estimated $51,000 up front and upwards of $2,500 per year PMI on a $300,000 mortgage.
It's a tradeoff, though. For buyers with 20% down, mortgage payments on a 30-year mortgage loan at 5% would be $1,288 a month. With just 3% down, the buyer would need to borrow $291,000 and make a $1,562 monthly payment.
2. Help with renovations
Fannie and Freddie have fixed big flaws like leaky roofs and damaged electrical work, and they often handle small projects like replacing appliances that are broken or missing, tearing up old carpet, or fixing other damage left by former owners or vandals.
Now, to entice buyers who want to update or upgrade, many of Fannie Mae's properties come with an optional mortgage that includes extra financing up to $30,000 for repairs and improvements. But with a little down payment and the extra amount tacked on, the buyer could end up owing more than the house is worth – especially if home prices continue to drop.
3. First dibs
Buyers who plan to live in their Freddie Mac-purchased home will get to see properties for at least the first 15 days they’re on the market -- before the listing opens to would-be landlords. Many bank-owned foreclosure properties are snatched up by cash-stocked investors who can wait out the downturn to sell later at a profit.
And Fannie and Freddie homes can be seen inside and out -- unlike some regular foreclosure listings. Consider bringing along a contractor when you view the home to help spot areas that need repairs and provide pricing. (Most contractors will do this for free.)
“It gives families who want to buy a home to live in the opportunity to look and bid without competition from cash-rich investors,” says a Freddie Mac spokesman.
Taken from: How to Buy a Home at a $100,000 Discount - Personal Finance - Real Estate - SmartMoney.com Read more: http://www.smartmoney.com/personal-finance/real-estate/tips-on-buying-a-home-at-a-100-000-discount/?page=all##ixzz11VYT6DJq
