How banks work


Bank Foreclosures for First-Time Buyers

Many first-time buyers overlook bankfirst  factor  to  consider.
foreclosures, thinking professional investors
will get the good property because they haveMany states also offer discounts on taxes for
more money for buying. In reality, first-timefirst-time buyers and/or the purchase of
buyers often stand a better chance offoreclosure homes. For the first-time buyer
acquiring the property, and getting it for awho 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 foris 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 advantagesprice. An investor is not exempt from this
to buying bank foreclosures, as well as fortax, and must factor it as an expense when
being a first-time buyer, if the buyer iscalculating  profit  potential.
willing  to  use  them.
First-time buyers also have more lender
When a first-time buyer looks at a bankoptions when purchasing a bank foreclosure.
foreclosure, they are deciding whether theMany government agencies offer special loan
home is what they want. The amount they areprograms for first-time buyers that are not
willing to bid depends on what they canavailable  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 incondition, so a first-time buyer needs to
selling or renting the home. An investor'stake the time to visit the property before
bid is limited by the amount of profit thatbuying. 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 lowerOccasionally, 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 rateaccount will offset the buyer's out-of-pocket
into their bid because it has bearing on theexpenses. 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 afirst-time buyer, even if there is no escrow
home loan of $100,000. The first-time buyeraccount.
receives an interest rate of 5.5%, while the
investor has a rate of 7.5%. If both theBank foreclosure property can often be
first-time buyer and the investor paid offobtained for less than the market value of
the loan within 90 days, the investor wouldthe property, making it easier for a
pay $1,874 in interest, while the first-timefirst-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 bidfirst-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 theadvantage over other buyers, and bank
first-time buyer, the purchase is for theforeclosures can help them utilize those
long-term, so the pay-off date is not theadvantages to become first-time homeowners.



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