In the third quarter of 2017, the share of distressed properties in the overall residential property sales fell to 12.5%. This is its lowest level since the third quarter of 2007, according to ATTOM Data Solutions. In its U.S. Home Sales Report for Q3 2017, ATTOM adds that the distressed property market might return to its single-digit share before the Great Recession.
Nonetheless, buying distressed properties remains an option in local markets. These homes are offered at a discount and financeable with mortgages. Let’s go over a number of mortgages that you can use if you want to buy a distressed home.
Getting to Know Distressed Properties
“Distressed” refers to the physical and legal conditions of the property. A distressed property can be residential or commercial homes:
(i) sold on a short sale, (ii) facing foreclosure because of defaulted payments or under foreclosure proceedings, (iii) repossessed by the bank (REO), (iv) with delinquent property taxes and special assessments due, and (v) as a result of poor maintenance, are in poor condition, among other things.
These properties stand out in neighborhoods because of their state of disrepair. As ATTOM notes, distressed sales nationally are now the exception rather than the rule. Indeed, the following metros showed an increased number of distressed sales during the third quarter:
- Corpus Christi, TX – up 33%
- Indianapolis, IN – up 30%
- Cedar Rapids, IA – up 29%
- Baton Rouge, LA – up 25%
- Provo, UT – up 22%
- Oklahoma City, OK – up 22%
Buying Distressed Properties
What sells distressed properties is their low sales price. If you can’t pay in cash, you can borrow for the purchase and its repairs for some mortgages. These are:
- FHA 203k loans
- Fannie Mae’s HomeStyle® Renovation loans
- VA loans
Shop and compare loans here.
1. FHA’s 203k loans are two-in-one loans, financing both the purchase price and its repairs. The ultimate goal is to make the home “habitable”. If the repairs involve cosmetic touch-ups less than $35,000, the streamline 203k loan will do the trick.
But if the distressed property requires major rehabilitation work, the standard 203k loan will apply. Before you finance any property, check if it meets the property standards set by the FHA for its loans.
2. Fannie Mae’s HomeStyle® mortgage is for homebuyers who plan to make moderate home improvements and repairs. It allows for purchase as well as limited cash-out refinance including renovation costs rolled in the loan balance.
While the FHA is clear with the property being your primary residence (although you can buy a multi-unit property and occupy one of the units to satisfy the rule), HomeStyle® allows second homes. For a renovation to be eligible for the Fannie Mae mortgage, it must be permanently affixed to the house and completed within 12 months since the delivery date of the loan.
3. For veterans and other eligible military borrowers, VA loans are the answer to their dreams of buying a home at a reduced price and zero down payment at that.
Although the VA has no specific requirements for the home’s size, room count, and building code requirements, it must be safe, sound and sanitary at the minimum. Check with the VA’s minimum property standards when you have a distressed home in mind.
Keep your options open when finding financing for these not-so-typical properties. Speak with a lender today.Click to See the Latest Mortgage Rates»