Bank Foreclosures for First-Time Buyers

Many first-time buyers overlook bank foreclosures,first factor to consider.
thinking professional investors will get the goodMany states also offer discounts on taxes for
property because they have more money for buying.first-time buyers and/or the purchase of foreclosure
In reality, first-time buyers often stand a betterhomes. For the first-time buyer who is purchasing a
chance of acquiring the property, and getting it for abank foreclosure, this could translate to a significant
better price.discount. In Maryland, for example, the first-time
Bank foreclosures offer an opportunity for homebuyer is exempt from paying transfer tax, which is
ownership that first-time buyers may not find$250 for every $100,000 of the purchase price. An
elsewhere. There are numerous advantages toinvestor is not exempt from this tax, and must
buying bank foreclosures, as well as for being afactor it as an expense when calculating profit
first-time buyer, if the buyer is willing to use them.potential.
When a first-time buyer looks at a bank foreclosure,First-time buyers also have more lender options when
they are deciding whether the home is what theypurchasing a bank foreclosure. Many government
want. The amount they are willing to bid depends onagencies offer special loan programs for first-time
what they can afford and how badly they want thebuyers that are not available to investors.
home. When an investor is looking at a bankBank foreclosures are not always in perfect condition,
foreclosure, they are looking at the potential profit inso a first-time buyer needs to take the time to visit
selling or renting the home. An investor's bid is limitedthe property before buying. The amount of time,
by the amount of profit that can be made.effort, and money required to make needed repairs
First-time buyers are usually offered a lower interestshould be a factor for any buyer when making a bid.
rate on home loans than investors. An investor hasOccasionally, the home will have an escrow account
to factor their interest rate into their bid because itfor repairs, and the money in the account will offset
has bearing on the profit potential. Consider thisthe buyer's out-of-pocket expenses. Fortunately,
example:repairs needed for bank foreclosures are usually
A first-time buyer and an investor both get a homeminor, so the home continues to be a bargain for the
loan of $100,000. The first-time buyer receives anfirst-time buyer, even if there is no escrow account.
interest rate of 5.5%, while the investor has a rateBank foreclosure property can often be obtained for
of 7.5%. If both the first-time buyer and the investorless than the market value of the property, making it
paid off the loan within 90 days, the investor wouldeasier for a first-time buyer to find a home that is
pay $1,874 in interest, while the first-time buyerwithin their price range. This is especially true if the
would pay $1,373 in interest.lender limits the amount a first-time buyer can
Of course, the loan gets higher as the bid goes up.borrow.
For the investor, the property would need to be soldOverall, a first-time buyer has a distinct advantage
in order to pay off the loan, which may take longerover other buyers, and bank foreclosures can help
than 90 days. For the first-time buyer, the purchasethem utilize those advantages to become first-time
is for the long-term, so the pay-off date is not thehomeowners.