First-time homebuyers, just say no to foreclosures

Q:I am a first-time homebuyer and I want to buy a foreclosure property. Do you think this is a good idea? And can I get a mortgage for a foreclosure property? Thanks! Lyle T.

A: Dear Mr. T:

Something is telling me that this could be a big mistake, but you and I may be thinking of two different things. If you are asking about buying a pre-foreclosure property, listed by an agent or for sale by owner ("FSBO", pronounced "fizzbo" in common usage) that you can see in advance and have inspected and appraised, then fine. The process is the same for buying a pre-foreclosure property as it is for buying any other property.

If you are talking about buying a foreclosure property at auction, then I do not recommend it for a first-time home buyer. Auctions are interesting. It is a unique group of people that show up to bid on properties.

Generally speaking, investors bid on properties, often sight-unseen, and they accept a great deal of risk in doing so. What is the condition of the property? Will it be delivered vacant or will they have to evict the former owners? There are no guarantees. This type of investor is generally pretty battle-hardened, has rehabbed properties before, and has some extra capital to carry the property and pay attorney's fees if any legal issues arise after the purchase.

And sometimes the properties are sold at or above market value and are not the instant bargain that people think they are. If you are thinking of buying your first home at auction, please think again.

As for financing, you can obtain a mortgage to buy a foreclosure property. The lender has to know that the property is in foreclosure, but you can get pre-approved for a mortgage subject to a ratified contract, appraisal and title work.

People who buy at a foreclosure auction are seeking instant equity over everything else - location, (think school districts and your commute to work), the number of bedrooms and bathrooms, recent renovations, upgraded systems, etc. But today's market is already a buyer's market. There is so much more to enjoying living in your first home than how much instant equity you have in your property.

You should interview three realtors or buyers agents that specialize in working with first-time home buyers. Pick the one that you feel listens to you and understands your concerns the best. Have your agent help you articulate your goals and prioritize a list of must-haves for your home. If you are not already pre-qualified for a home loan, get pre-qualified as soon as possible so your real estate agent knows your purchasing power. (http://media.www.districtchronicles.com)