DEAN GRAZIOSI: DEAN GRAZIOSI REAL ESTATE

Just because you have bad credit, it doesn’t automatically mean that you cannot purchase a home.  You may be required to pay a higher interest rate than other people, but you are not disqualified from pursuing a home purchase merely because you have bad credit.

If you have recently filed for bankruptcy it is recommended that you wait at least four years before applying for a mortgage.  If you have a foreclosure in your past it is recommended that you wait two years before applying for a mortgage, this means that in the case of a foreclosure you may qualify for as little as 3.5% down.

If you find a lender who will approve you sooner than the recommended waiting period, you may be forced to come up with a 20 – 35% down payment.  Along with the large down payment, you will also have a much higher interest rate and loan terms that are not favorable.  If you cannot meet these strict requirements, it may be better for you to wait the allotted amount of time before trying to purchase a home.

Proving to lenders that you are a good risk requires that you have reliable employment, a low amount of outstanding debt and are working to improve your rating regularly.  Lenders like to see that you are steady and can handle the responsibility of a mortgage payment.  Proving this to them may take some time, but once they recognize that you are not a high risk loan, they may approve your application.

If you have any outstanding debts, it is important that you pay off as many as possible.  This will show lenders that you are serious and you are working towards repairing your credit.  If a debt has reached the point of being sent to a collection agency, you will have to contact each agency and request that a payment arrangement be set up or if you able to pay the debt in full.  Many collection agencies will offer a discount of your balance just to get the account off of their books.  If they offer a discount take advantage of it, this means that you will be paying off the creditor for a lesser amount.

If for any reason you are not satisfied with the rates offered by a lender you may want to consider purchasing a home that offers seller financing.  In this case the seller would take the place of a lender and you would pay them directly.  Choosing to go this route means that you may not have to meet the strict guidelines set forth by lenders, your interest rate will be lower and you will close fast.  This is a very good solution for those who can’t meet the requirements of many lenders.

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REO’s are Real Estate Owned properties. REO in the real estate investment business usually refers to those homes that the banks hold for one reason or another. The most common reason a bank would have an REO is if the homeowner defaulted on the home and the bank foreclosed. Then, the bank would take possession and the house would become an REO. It might seem to the untrained observer that banks could hold onto these homes until the market improved or other conditions were right for the sale. However, there are several reasons banks need to get rid of their stock of REO’s as quickly as possible.

Classification

There is a problem with the classification of REO properties for lenders. They are literally bad debt, but lenders are only allowed to claim a certain amount of bad debt on their books. Otherwise, the lender may be termed as insolvent. Selling the REO property will take care of this problem in the sense that there will be no excess bad debt to be added to the lender’s financial reports.

Focus

The bank’s focus is on dealing with money. They are not in the business of maintaining homes, getting them ready for market, or even selling them. This creates a dilution of the bank’s objectives. The more REO property they can sell off, the more they can stay on track to accomplish their financial goals. A bank which keeps its REO’s to a minimum is a healthy bank, and one which is focused on being a bank above all else. 

Use of Bank Resources

REO properties do not sit empty and take care of themselves. If a bank allowed that to happen, they would be asking for the home to go down in value rapidly. What is more, REO homes do not ordinarily sell themselves. The bank has to devote manpower and money to maintaining and selling every REO home they hold. This diverts resources away from the main purposes of the bank, such as lending money. If you can offer the bank an acceptable price for an REO home, they will be happy. They will be able to free up more of their human and financial resources to be put to use for the bank’s primary goals.

Auction Problems

One way banks try to get rid of REO’s is through foreclosure auctions. However, there are several problems that plague these auctions. For one, banks may place a minimum bid on the property as the amount the homeowner still owes. Yet, the home may not be worth that much. When no one bids on that home, it reverts to the bank. If you can come in and make an offer that will keep the bank from going through that useless process, the bank may jump at the chance to make it happen. It is rarely if ever a good deal for the bank to hold onto an REO property. That leaves you, as the investor, in a position to acquire properties that you might not have otherwise.

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