It’s fairly common for REALTORS® to receive calls from buyers looking for REO (real estate owned) or fixer-upper properties. REO are foreclosed properties now owned by a lender. Most fall into the fixer-upper category. Buyers generally feel that accepting a fixer-upper might provide a much-needed price break while others are looking for something they can improve and resell for a quick profit. Keep in mind that trying to buy a “fixer” using OPM (Other People’s Money) is not a simple process. Fact is, buying such a property with little or no money down is virtually impossible. Just like an auto lender who wants to be sure a car runs before they loan on it, home lenders want to be sure a house can, house. Buying a fixer involves much more than just the willingness to do repairs. Remember, the two components of a loan are buyer strength and the collateral (the property). Loans with little or no money down are highly scrutinized by underwriters who must cautiously assess the lender’s exposure. Lenders don’t want to be stuck with a property that will bring far less than owed at a foreclosure sale. This is exactly what happens to homes needing major repairs. With a healthy down payment some lenders will accept these properties if repairs are made by a licensed contractor. A construction loan may be required if extensive repairs are required. A FHA Section 235 loan (3% down) allows buyers with verifiable experience to make repairs themselves. It’s not an easy process and one requiring a very patient seller. It is also possible to have some repairs done prior to recordation but these are often at buyer’s expense. Because lending rules change almost daily, be sure ask your lender how to structure your purchase contract. It may be possible to find a contractor who will agree to be paid out of the seller’s proceeds if the lender allows it. Most don’t these days. An appraiser is normally required to verify completion of any repairs that must be done prior to closing. Those short on patience and weak in the pocket are well advised to consider other options. Remember, get started any way you can. Adjust expectations of location, house or land size but not necessarily property condition. Today’s buyers no longer consider their home a forever commitment. Start small and work your way up. Until then, remember to “Keep the Faith”!

Article provided by Denise S Nakanishi, R, Realtor of the Year 2009