Your First House — A Foreclosure?

If you and your future spouse are creative and good with tools, a foreclosure can make the perfect first home. If you’re worried, keep in mind that foreclosure laws do not prevent you from buying a foreclosure as your first home. Anyone can buy a foreclosed home without restriction. Here are some other helpful tips:

Federal Housing Administration

The FHA offers several first-time homebuyer programs that allow you to buy foreclosed or pre-foreclosed properties. The Department of Housing and Urban Development offers a selection of foreclosed homes on its website that you can view. If you plan on buying a foreclosed home from HUD using an FHA loan, you will receive priority at auction since you are a first-time homebuyer.

FHA Rehabilitation Loans

The FHA offers a loan program that allows you to buy a foreclosed home in disrepair. These homes sometimes sell for pennies on the dollar since they are in need of rehabilitation. Known as an FHA (203k) mortgage rehabilitation loan, you can buy a home in need of repair and fix it yourself using funds from the loan. The FHA and your mortgage lender will add the cost of repairs to the principal balance of your mortgage. Keep in mind that the FHA and HUD do not provide the actual loan. Instead, they provide insurance to mortgage lenders in the event you default on your loan.

Different Types of Foreclosed Homes

A foreclosure occurs when you cannot make your monthly mortgage payment obligation causing you to give your home back to your lender. However, there are different types of foreclosures and the laws vary by state. Here are some of the common terms you should know if you plan on buying a foreclosed home:

• Pre-Foreclosure - When a homeowner receives a notice of default and faces potential foreclosure.

• Post-Foreclosure - Known as an REO (real estate owned property), the bank now owns the foreclosed home outright and will try and sell the home for less than market value to recoup some of its losses.

• Short Sale - When homeowners default on their mortgages, banks will sometimes approve a short sale, which allows homeowners to sell their homes for less than they owe.

Before you buy, order a home inspection to ensure that it's structurally sound. A foreclosed home can help you meet your homeownership goals by giving you a chance to buy a quality home for less than market value. And you can use the extra funds for minor remodels that can make it your one-of-a-kind home-sweet-home. Roll up your sleeves — it’s time to get to work!