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House Pre Approval and Foreclosures
precisionk
Registered User regular
Registered User regular
Well I am in the process of buying a house and tomorrow I will be putting down my first ever offer on a house I am interested in. Now the price of the house is 179k and I am offering 160k for it. Now this house is foreclosed and owned by the bank. My realtor wants my pre-approval letter which I have, but I am technically pre-approved for 179k and my letter says so, however, I don't want the bank thinking they see me pre-approved for the amount and reject my offer.
So I am curious as to how the realtor presents this. Will he present my pre-approval letter to the bank or will he just tell them I am pre-approved. I obviously don't want to be jerked around with the fact I can afford the asking price but offering less.
Any thoughts?
So I am curious as to how the realtor presents this. Will he present my pre-approval letter to the bank or will he just tell them I am pre-approved. I obviously don't want to be jerked around with the fact I can afford the asking price but offering less.
Any thoughts?
precisionk on
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Really though, you should discuss this with your realtor. This is a huge investment on your part and a sizeable chunk of money for the realtor, everyone should walk away from the deal happy.
Also: Congratulations on the house, best of luck getting it.
It does tip your hand to the realtor that you can afford more than you're asking, but it's a normal thing for him to ask for.
Also know that pre-approval doesn't mean you'll get the loan. Those who are a borderline credit-risk may get pre-approved but might fail at final approval (which might not happen til closing), so to be most informed you'd want to talk to someone mortgage-side and see if they've actually run the numbers on you (checked into your financial history in detail, including the past several years of tax statements).
Even if the seller finds out what how much money/credit you have, the important thing is what you're willing to pay, not what you can afford to pay. You shouldn't let anyone push you around on that. Ideally you'd have a buyers agent whom you can trust, and could let you know if your expectations are out of whack from what the market will support.
Keep in mind that when dealing with foreclosures, part of the seller's arrangement is that the lender will choose the title company - this is a bit different than a regular house sale.
REO properties can be a fantastic deal, but here's a couple caveats in case you weren't aware of them:
-They are almost always sold as-is, with NO disclosures. It is up to you or a professional appraiser to identify any existing issues on the house, and you have no recourse for any faults.
-Banks can take weeks to respond to an offer, especially if there hasn't been one on the house before.
As far as an offer: banks are obviously very aware of what home values are like in the neighborhood and almost always have a set figure they will not go below. The key is determining that value - they may or may not have a counter-offer after yours. If they don't accept your offer and have no counter-offer, then their minimum value is likely very close to the listed price.
The reason they want your pre-approval information is most likely not to see what you were approved for, but to ensure that you are a serious buyer. Banks don't want to waste their time with someone who will fall through during escrow.
What I did (At the suggestion of my Realtor) was get the company who gave me the pre-approval letter, to give me a new pre-approval letter approving me at just $1,000 over what I was asking for the house. They had the new letter out to me within a couple of hours and the bank took about a week to accept the offer.
The bank I'm dealing with would not do business unless they got to actually see my pre-approval letter. So my Realtor not showing it to them was not an option.
I'm 28 days from the closing date we put on the offer, just about everything is looking good, but the bank can occasionally make some ridiculous demands. For instance, the bank owned house didn't have covers on 9 or 10 outlets throughout the house. The FHA Loan inspector came out and put in her report that those covers needed to be replaced before the loan would go through. The bank is demanding that, rather than me going in and screwing in covers on a few outlets, I hire a licensed contractor to come in and do it.
The bad news - this is one of the most nerve wracking times of your life. Submitting the offer will be the easy part. Negotiating, the home inspection, and all the fun stuff that comes between the official offer and closing is a real SOB. The good news - most people will only ever go through this a few times in their lives.
I just became a homeowner last month. The offer was great, negotiating wasn't TOO terrible, then everything else was a NIGHTMARE. The home inspection didn't go too badly, but little things kept creeping up in the process. The homeowner shut off the water to the house in an attempt to cover up drainage problems, the roof leak that appeared to be fixed in the inspection didn't show up again until 3 weeks ago when there was snow sitting on the roof, running down my chimney and destroying my walls, etc.
Like someone else mentioned - REO properties are sold as-is. In a normal buyer-seller sale when the home inspection is complete you can either accept the home as-is with no repairs for your offering price, you can negotiate repairs with the seller, or you can walk away. With REO homes you can either accept it or walk away. That's about it. The bank will not repair ANYTHING, no matter how severe. Usually what they will tell you is that they factored in the "defects" into their selling price.
The reason I am offer 160k on a 179k property, is just a month ago the property was up for sale on a short sale for $150k. The bank owns it now and is asking for 179k. I made sure to inform my realtor to let the bank know I saw the price down to 150k, so 160k is pretty reasonable in my mind. Tough to pay for a property when you know it was 10k less about a week ago.
I thought before a person can list a house for a price, the bank has to authorize before they can adjust it?
It depends on the bank's agreement with the current owner and how their real estate agent has set up the listing. Realtor friends I work with have told me that sometimes short sales are deliberately priced lower than the bank would feasibly accept, in the hopes the bank would give in and the seller has a chance to sell it in a flooded market. It may not be common, but it's what I've heard.