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