Buying a Home After a Short Sale or Foreclosure
It’s hard to believe but the mortgage crisis started an entire 6 years ago now. People have been through lot, foreclosures, short sales you name it well now enough time has passed that some of those folks are ready to get back on the horse and maybe even buy again.
Joining me now is John McGeough and Anthony Lamacchia of Lamacchia Realty . Thanks for being with us this morning. Alright so first let’s get an idea of just how many people have dealt with foreclosures here in the state.
It’s around 56,000 and then there’s say 15 or 20 [thousand] that have done short sales or deed-in-lieus [of foreclosure] so we’re talking about 70,000 people.
So a lot of people here in the state
A lot, and a lot of people are asking when can we buy again?
Really? You’re getting a lot of people asking this type of thing? Ok so let’s say you’ve gone through foreclosure, some time has passed, are there certain things I need to know about when I can buy again or how I go about doing this?
It really depends on if it’s a foreclosure it’s usually 4 plus years before you can get back out there. With a short sale it is about 2 plus years.
Why is that?
Different credit, it’s a different view on how lenders look at it. They feel short sales are a much more responsible approach so they’re a little more lenient when you’re going to buy again. So that’s creating obviously a huge opportunity for folks who are seeing unbelievable rates –still the lowest we’ve seen in history –and we’ve seen a huge rush in the market already. This is by far the best spring market we’ve seen in 4 years.
That’s right spring is a big time obviously, we’re getting out of the winter season here. When people call you guys what are some of the things that they’re worried about, what are they concerned with?
Some people say, what should I do different this time? A lot of our clients are short sales and a lot of our clients are past short sale clients and we say what should I do differently? We tell them the same thing we tell everybody, whether they had a short sale before or they’re just a normal buyer: don’t rush, make sure you have a big enough down payment, and buy when you’re ready and if that means you’ve got to wait an extra 6 months, rent 6 months longer, to have a larger down payment or to have more job history or to get that lower interest rate– then wait. It is a great time to buy like John said, but if you can buy now and get a pretty good deal or buy in September or get a great deal with your interest rate because you’ll have a larger down payment, then wait.
It’s kind of hard because people who have been foreclosed on in the past, these are unforeseen circumstances: perhaps they lost their job, you don’t know what could have happened. So is there really you know is there stuff they can do can to help prevent this?
Well yeah, with the next purchase, just like Anthony says, yes be patient, but also learn from what didn’t work before: don’t overspend, even if you can afford a $300,000 home, doesn’t mean that’s what you need to buy, maybe you can buy a $250,000 home. Save up a little more for a down payment, maybe make extra principal payments so you can start building some equity quicker. Do your homework, get it to the right agent so you don’t overpay. Get the right home inspector so you discover mold in the attic that you found before but it was too late. The market has changed quite a bit buyers have tremendous leverage and they should use that to get a good deal and get the right deal and also plan on staying there long-term. Not 5 years, stay there 10, 15, 20 years to really establish yourself and build some equity.
Do you recommend that this time around does it make a difference whether or not you put a larger down payment down, now I know there are certain requirements with FHA loans you can have a smaller percentage and obviously with a more traditional mortgage you have to have a larger down payment, is there one that’s better for after foreclosure?
If you have 20% to put down—wonderful—and if you don’t, say if you only have 5% and you want to use 3.5% of that for an FHA loan then that’s ok, too. But I think the key is, when people buy you don’t have to max out if you can afford $2,000 a month for a mortgage that doesn’t mean you have to spend $2,000 a month. That’s kind of what John said about 300 and 250. Everybody got into this mindset back when the market was really hot to just max out what they could spend per month, you don’t have to do that—you shouldn’t do that—
It’s not your only expense every month, people!
People get laid off, people have health problems, things happen so you want to make it so if you’re not working for 4 or 5 months you can still keep your home and life goes on.
You bring up a valid point—there’s maintenance fees, there’s insurance, there’s taxes, there’s condo fees, make sure you budget for them as well.
John McGeough and Anthony Lamacchia thank you guys for being here. We really appreciate it.
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