Buying foreclosures with conventional/203k loans - Twin Cities
Member since 2018 · 9 posts · 1 vote
Buying foreclosures with conventional/203k loans - Twin Cities
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Matthew PorcaroBusiness Member
Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votesOriginally posted by @Jason Neff:
Hi all,
Can anyone speak to their experience buying foreclosures in the Twin Cities with conventional or 203k loans? Or speak to the local environment for foreclosures generally?
I'm looking to purchase an SFH foreclosure with no major repairs in the outer skirts of the Twin Cities. A few lenders have said they can do conventional or 203k loans on foreclosures and close quickly, though I'm curious what the competition is like for buyers like myself and if local banks/sellers are willing to entertain non-cash offers. I want to believe my initial offer could be stronger than a cash offer, though it would depend more on the success of the appraisal.
Because I'm not in a hurry, I could make many offers until something works, but I'd also like to tip the odds in my favor. For example, it would be nice to have a contact at a bank who sells foreclosures. Or any lender/realtor who can help maneuver through this situation.
Thanks!
Jason
A common misconception is that distressed properties only take cash offers, and/or you can't compete with cash offers with a 203k loan. This really is not the case for a few reasons.
1. If you're going after foreclosures, there's a lot of bank owned foreclosure programs (fannie mae, freddie mac) foreclosures that offer a 10-20 day "First Look" program, where only owner occupants can offer on a property. These banks are mandated to entertain any reasonable owner occupant renovation loan offers on distressed properties. This is how I found my first property I bought with a 203k.
2. You'll often have sellers agents say that they have "10+ cash offers on a property" as a tactic to try to steer you away or intimidate you to bid a higher number, but the reality is if they were good offers, the seller would have taken it already. With owner occupied loans, you have MUCH more favorable terms than a "cash" investor typically has. Usually cash investors are funds or hard money offers, that need the property for much less of a price than you can get away with. Don't let any realtors push you around on your offers. Place the offer anyway, and ask for a signature from the seller to ensure they saw your offer.
The one's that try to push you around for wanting to use a 203k loan are often the most misinformed or just pure lazy and looking for the lowest hanging fruit and a resistance free transaction. But that shouldn't change your purchasing criteria that works for YOU.
Hope this helps some, good luck!
Matt
9 Replies
- Real Estate Agent · Roseville MN · Member since 2016 · 30 posts · 9 votes6y
Originally posted by @Jason Neff:
Hi all,
Can anyone speak to their experience buying foreclosures in the Twin Cities with conventional or 203k loans? Or speak to the local environment for foreclosures generally?
I'm looking to purchase an SFH foreclosure with no major repairs in the outer skirts of the Twin Cities. A few lenders have said they can do conventional or 203k loans on foreclosures and close quickly, though I'm curious what the competition is like for buyers like myself and if local banks/sellers are willing to entertain non-cash offers. I want to believe my initial offer could be stronger than a cash offer, though it would depend more on the success of the appraisal.Because I'm not in a hurry, I could make many offers until something works, but I'd also like to tip the odds in my favor. For example, it would be nice to have a contact at a bank who sells foreclosures. Or any lender/realtor who can help maneuver through this situation.
Thanks!
Jason
Hi Jason
That sounds like a good plan for financing a deal. Im a Realtor in Twin cities and if its a on market foreclosure the competition will be pretty high. I just sold a property during the covi ordeal few weeks ago for $10k over list. On MLS most foreclosures do have option to use FHA or insured conventional. So it is possible to get one. However your offer will much more likely to get taken with better terms for you if you can be using cash. Hope this helps?
- Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes6y
It is extremely difficult to have a stronger offer than all cash/no contingency which you can not do with a 203K loan. When an all cash offer is made, no appraisal is needed and is not dependent as yours would be. I've sold numerous properties/year and literally would and have taken an all cash/no contingency offer for sizable amounts less as they are guaranteed to close.
- Real Estate Agent · Roseville MN · Member since 2016 · 30 posts · 9 votes6y
Originally posted by @Bruce Runn:
It is extremely difficult to have a stronger offer than all cash/no contingency which you can not do with a 203K loan. When an all cash offer is made, no appraisal is needed and is not dependent as yours would be. I've sold numerous properties/year and literally would and have taken an all cash/no contingency offer for sizable amounts less as they are guaranteed to close.
Well said, Not always about the total offer price. Sellers want to know you can close so they don't get their property tied up for month while appraisals and inspections are going on.
- Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes6y
I've literally accepted offers $20,000 over ask and after inspection, they ask for $20,000 in discounts with "fake" issues (I'm a GC who does full renovations so I know if anything hasn't been taken care of)- there seems to be a real disingenuous effort by some buyers to get a property under contract with the sole intention of negotiating it down so I reject anyone who does that and steer my acceptance to people with more clear intentions/offers. I've also rejected higher escalator clause offers if they low ball the initial offer and put an escalator hoping to get a steal where other people do the heavy lifting on the price. Immediate rejection if it's below asking with over ask escalator. I price my places competitively and don't have to play games with fools.
- Member since 2018 · 9 posts · 1 vote6y
Originally posted by @Bruce Runn:
It is extremely difficult to have a stronger offer than all cash/no contingency which you can not do with a 203K loan. When an all cash offer is made, no appraisal is needed and is not dependent as yours would be. I've sold numerous properties/year and literally would and have taken an all cash/no contingency offer for sizable amounts less as they are guaranteed to close.
Thanks Bruce. I could deal with 1 out of 30 offers getting accepted. If it's more like 1 in 100, I may be better off looking at different options. My impression is that deals could also fall through after the appraisal, even if there aren't obvious issues. In the past, I used a 203k loan to get past an appraisal repair issue, but that wouldn't be the first choice here.
Were the homes you sold foreclosures/REOs?
- Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes6y
No, but I've bought my share of pre foreclosures, foreclosures at Sheriff's auction, and post foreclosure during redemption. I've fixed them up and kept some or sold some after renovation/renting them for a year and a day to qualify for Long Term Capital Gains.
- Member since 2018 · 9 posts · 1 vote6y
Originally posted by @Bruce Runn:
No, but I've bought my share of pre foreclosures, foreclosures at Sheriff's auction, and post foreclosure during redemption. I've fixed them up and kept some or sold some after renovation/renting them for a year and a day to qualify for Long Term Capital Gains.
Thanks. I just sold my first home with long term capital gains after fixing it up and renting it for a year or so. The proceeds minus taxes and expenses are 60k which won't get me very far with cash offers. I consider this a win, but there was a LOT of labor and broken bones that went into that.
For this next home, I'm interesting in a 4br/3ba listing in the NW suburbs that's severely undervalued with minimal updates. This would be a home where my financee and I live for 5+ years and begin to raise a child. It doesn't need to be a foreclosure, but lately I'm seeing more foreclosures that meet this criteria.
For example, a 4br/3ba 2300 sq ft foreclosure in Maple Grove for 260k. I assume this goes to a cash buyer in less than a week and gets resold for 330k next year after minor updates. Nevertheless, I want to at least try my luck at offering on these listings in addition to anything else that meets my criteria.
- 6yMatthew PorcaroBusiness MemberLender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
Originally posted by @Jason Neff:
Hi all,
Can anyone speak to their experience buying foreclosures in the Twin Cities with conventional or 203k loans? Or speak to the local environment for foreclosures generally?
I'm looking to purchase an SFH foreclosure with no major repairs in the outer skirts of the Twin Cities. A few lenders have said they can do conventional or 203k loans on foreclosures and close quickly, though I'm curious what the competition is like for buyers like myself and if local banks/sellers are willing to entertain non-cash offers. I want to believe my initial offer could be stronger than a cash offer, though it would depend more on the success of the appraisal.Because I'm not in a hurry, I could make many offers until something works, but I'd also like to tip the odds in my favor. For example, it would be nice to have a contact at a bank who sells foreclosures. Or any lender/realtor who can help maneuver through this situation.
Thanks!
Jason
A common misconception is that distressed properties only take cash offers, and/or you can't compete with cash offers with a 203k loan. This really is not the case for a few reasons.
1. If you're going after foreclosures, there's a lot of bank owned foreclosure programs (fannie mae, freddie mac) foreclosures that offer a 10-20 day "First Look" program, where only owner occupants can offer on a property. These banks are mandated to entertain any reasonable owner occupant renovation loan offers on distressed properties. This is how I found my first property I bought with a 203k.
2. You'll often have sellers agents say that they have "10+ cash offers on a property" as a tactic to try to steer you away or intimidate you to bid a higher number, but the reality is if they were good offers, the seller would have taken it already. With owner occupied loans, you have MUCH more favorable terms than a "cash" investor typically has. Usually cash investors are funds or hard money offers, that need the property for much less of a price than you can get away with. Don't let any realtors push you around on your offers. Place the offer anyway, and ask for a signature from the seller to ensure they saw your offer.
The one's that try to push you around for wanting to use a 203k loan are often the most misinformed or just pure lazy and looking for the lowest hanging fruit and a resistance free transaction. But that shouldn't change your purchasing criteria that works for YOU.
Hope this helps some, good luck!
Matt
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