Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction

There are a number of foreclosures and short sales in the market and when you are planning on buying a home, they may present a lot of value. But there are certain problems associated with them that homeowners should be aware of before applying for foreclosure sale financing:

  • Property Condition- Homeowners who are facing a foreclosure or want to short sell their house generally do not have the money to maintain the property well or pay for the mortgage. This can cause problems for you, if you are planning on getting an FHA loan. These require that the property should be ready to move into

  • Timing Challenges- Typically, a short sale process has very awkward timeframes for approval of the purchase contract and loan closing. Every bank has different rules; however the approval can take 7-120 days. Since there is no fixed timeframe for approval of a short sale, timing of the loan submission, rate locks & the closing can become very challenging. When you are buying a short-sale property, you should be prepared for loads of paperwork

  • New Construction- If you want to make use of FHA financing to buy new construction – there are a number of different issues that might crop up. You must have a CO- Certificate of Occupancy and if this is not available, you will not be able to go to the FHA and may have to opt for a renovation loan

  • Builder’s Certification- You might need a 10-year warranty, termite inspection, well test and septic inspection, when applicable while buying a home

  • Construction Permits- You will require specific documentation (in a certain combination), to satisfy the lender and the FHA. It is important that you work with a knowledgeable loan officer while buying any new construction with financing from the FHA

The Right Support

If you decide to use conventional Freddie Mac/ Fannie Mae financing you will still have some hurdles to navigate, but they will be a little less than the ones you encounter with the FHA. But the down payment will be higher and there are more stringent credit qualification guidelines.

Regardless of whether you plan on a FHA loan, renovation financing or conventional financing, it is crucial that you have a strong home-buying team who can help and support you through the negotiations and tons of paperwork. For more information on financing for foreclosures, contact ResMac Home Loans.

 

What’s The Difference Between A Primary Residence, Second Home and Investment Property?

When you are applying for a mortgage loan, your “occupancy type” becomes a major factor in the actual amount of the down payment that is required, the loan program available & the mortgage interest rate. Whether you are buying, doing a term or rate financing/ taking equity out of the property via cash-out refinance- the underwriter will always take the “occupancy type” into consideration.

Types of Occupancy

There are 3 types of occupancy:

  • Owner Occupied or Primary Residence – As per the HUD, a primary residence is essentially a property which a borrower will occupy for a larger part of the calendar year. At least 1 borrower has to occupy that property & sign the security instrument as well as the mortgage-note for that property to be considered as “owner-occupied”

  • Second Home – In order to qualify as a 2nd home, typically, that property should be a minimum of 50 miles from your primary residence. The real-estate should not be acquired for rental investment purposes

  • Investment Property- This type of property is not occupied by the owner and is used only as source of rental income

Down Payment Requirements

The down payment that you make will be dependent on the type.

  • Primary Residence – Purchases for VA & USDA can go upto 100% financing, while the FHA requires 3.5 percent of the purchase price as down-payment. Conventional financing might require the down payment to be in the 5% – 25% range, based on the credit score, property type, county and the loan amount

  • Second Home – An average 10 percent of a down-payment is required for a purchase, and 25 percent equity for any refinance

  • Investment Property – The down payment requirement can be the 20-25% range based in the total number of units. When you are doing a cash-out refinance on any investment property for 2-4 units, the required loan-to-value will have to be 70percent /lower to qualify.

Note- For any kind of high-balance loan amount the mentioned LTV- Loan-to-Value requirements will undergo a change. Certain credit score requirements will also be applicable. To understand more about how the property type affects your down payment, contact ResMac Home Loans today.