Home buying - Foreclosure

Stephanie2167 · February 2017

As many of you know we are a military family. We are due to transfer next year and there may be the possibility for us to go home. Home for us is the outrageously expensive Southern California. After living in WA, TX and PA the thought of dropping $600k+ on a small house in California sorta makes us sick. Especially since we know what we could get for that amount of money in TX.

I see LOTS of "Pre-foreclosures" online that are more reasonable but they have no pictures and I'm not even sure a VA loan would fund a foreclosure.

Anyone have any experience with foreclosures? We could live with my parents for a few months if need be because I know foreclosures can take a bit longer than a traditional sale.

Advice? Things to think about? Thanks!

hoffse · February 2017

Read up on California proposition 13 before you buy anything. Personally, I would rent.

Stephanie2167 · February 2017

hoffse said:

Read up on California proposition 13 before you buy anything. Personally, I would rent.

Even if we don't plan to leave? This move would be his last.

brij2006 · February 2017

We purchased a foreclosure. The only loan it would qualify for was a conventional loan. Majority of foreclosures are an as-is purchase, which is why loans like FHA and VA usually won't go for them. They pretty much want a home in pristine condition before they will close on the loan, and the buyers can't do the repairs, the sellers have to in order for the loan to qualify. That's how it was last I knew, but it very well could be different since.

Personally, I wouldn't buy if you are going to get orders there. Primarily because if you run the numbers, you need to be in a home for 2-3 years for it to break even with what you would have paid in rent after paying for closing costs and fee's. As you know, with the military there is no guarantee you will be there for at least 2 years. Then at that point you're either trying to offload a home because you're moving hundreds of miles away, or you're trying to be long distant landlords. Being a landlord may not seem all too bad, but when you're long distant you have no clue if someone is changing the oil of their Harley in your living room.

Stephanie2167 · February 2017

brij2006 said:

We purchased a foreclosure. The only loan it would qualify for was a conventional loan. Majority of foreclosures are an as-is purchase, which is why loans like FHA and VA usually won't go for them. They pretty much want a home in pristine condition before they will close on the loan, and the buyers can't do the repairs, the sellers have to in order for the loan to qualify. That's how it was last I knew, but it very well could be different since.

Personally, I wouldn't buy if you are going to get orders there. Primarily because if you run the numbers, you need to be in a home for 2-3 years for it to break even with what you would have paid in rent after paying for closing costs and fee's. As you know, with the military there is no guarantee you will be there for at least 2 years. Then at that point you're either trying to offload a home because you're moving hundreds of miles away, or you're trying to be long distant landlords. Being a landlord may not seem all too bad, but when you're long distant you have no clue if someone is changing the oil of their Harley in your living room.

We would only buy if we weren't planning on leaving. Our next move would put him up to retirement. Which is why we'd even think about it. He'd have 4 years left and the jobs would be 4 years. So he's retire and we'd stay put.

brij2006 · February 2017

I honesty would still wait. Primarily because things are so lucrative with the military. Rent until he's officially retired that way there's no fear or worry about something happening and him getting different orders in those 4 years. Use that time to save up a larger down payment so maybe you won't have to be tied to only having foreclosures in your price range.

hoffse · February 2017

Stephanie2167 said:

hoffse said:

Read up on California proposition 13 before you buy anything. Personally, I would rent.

Even if we don't plan to leave? This move would be his last.

I would not retire in California. There are so many other states that treat retiree income significantly better, have a much lower cost of living, and that still have nice weather, etc.

The problem with prop 13 is that property taxes are reset every time you buy. So whatever you are seeing for property taxes is based on the previous owners' cost basis. This helps people who bought years ago and never plan to buy again, but for people buying now it locks in a pretty high tax rate forever. House prices are so inflated there, and prop. 13 locks in the tax rate based on your sale price regardless of what the market actually does in the future.

I have a bunch of family who live out there. They bought houses before the most recent silicone valley boom. Many of them are approaching retirement age, and they want to downsize, but prop 13 means they would be paying higher property taxes for a much smaller property if they did so. Most of them have decided to move out of state when they are ready to pull the trigger and downsize.

short+sassy · February 2017

I've purchased two foreclosures. The closing process wasn't any longer for either of them, but it can be. @brij2006 is right, it's rare that foreclosures are in the kind of perfect shape they need to be for a VA or FHA loan. But, as long as they're in fairly decent condition, you can get a conventional loan. Those typically require at least a 5% down payment, but you'll also need to pay private mortgage insurance (PMI) if the down payment is less than 20%.

Plus, there will probably be repairs that need to be made. I've viewed a lot of foreclosures and have never seen one that didn't need something.

One thing I would avoid like the plague, especially in CA, is short sales. A short sale is when the owner is still selling the property, but the sale won't cover their outstanding loan. So their bank needs to agree to the sale also. I've heard of buyers not even hearing a response on their offer (on the bank side) for months.

It's very irritating when houses for sale don't have pics. Do you have an agent in CA? They can usually at least get the scoop on condition/repairs needed.

I grew up in So CA and moved away after I graduated from college because of rent/home prices. So obviously I'm biased, lol. But, unless you all especially want to stay in CA after your H retires from the military, I'd just rent for now. Then move somewhere with a lower COL when he retires and buy a house there.

hoffse · February 2017

I will add - most people out there fall in the 9% bracket for state income tax, and this will include your retirement income.

There's a reason retirees move to Florida. There is no state income tax there and the sales and property taxes are reasonable. Compared to California, you are experiencing an immediate 9% savings of all your earnings if you move to Florida (or Texas, Tennessee, etc.). That means you can afford to save less for retirement or ride out a downturn more successfully.

KAdams767 · February 2017

hoffse said:

I will add - most people out there fall in the 9% bracket for state income tax, and this will include your retirement income.

There's a reason retirees move to Florida. There is no state income tax there and the sales and property taxes are reasonable. Compared to California, you are experiencing an immediate 9% savings of all your earnings if you move to Florida (or Texas, Tennessee, etc.). That means you can afford to save less for retirement or ride out a downturn more successfully.

Sorry, but LOL at this. There are a lot of reasons people may prefer California to Florida. HCOL areas aren't popular just because people don't realize it's cheaper elsewhere.

hoffse · February 2017

KAdams767 said:

hoffse said:

I will add - most people out there fall in the 9% bracket for state income tax, and this will include your retirement income.

There's a reason retirees move to Florida. There is no state income tax there and the sales and property taxes are reasonable. Compared to California, you are experiencing an immediate 9% savings of all your earnings if you move to Florida (or Texas, Tennessee, etc.). That means you can afford to save less for retirement or ride out a downturn more successfully.

Sorry, but LOL at this. There are a lot of reasons people may prefer California to Florida. HCOL areas aren't popular just because people don't realize it's cheaper elsewhere.

I get that, but this is something she should keep in mind. It's one thing when the job demands it (silicone valley). It's another thing entirely when people are making choices for retirement and have flexibility to move.

9% is significant. It can work out to hundreds of thousands of dollars over the course of a retirement.

Stephanie2167 · February 2017

short+sassy said:

I've purchased two foreclosures. The closing process wasn't any longer for either of them, but it can be. @brij2006 is right, it's rare that foreclosures are in the kind of perfect shape they need to be for a VA or FHA loan. But, as long as they're in fairly decent condition, you can get a conventional loan. Those typically require at least a 5% down payment, but you'll also need to pay private mortgage insurance (PMI) if the down payment is less than 20%.
Plus, there will probably be repairs that need to be made. I've viewed a lot of foreclosures and have never seen one that didn't need something.
One thing I would avoid like the plague, especially in CA, is short sales. A short sale is when the owner is still selling the property, but the sale won't cover their outstanding loan. So their bank needs to agree to the sale also. I've heard of buyers not even hearing a response on their offer (on the bank side) for months.
It's very irritating when houses for sale don't have pics. Do you have an agent in CA? They can usually at least get the scoop on condition/repairs needed.
I grew up in So CA and moved away after I graduated from college because of rent/home prices. So obviously I'm biased, lol. But, unless you all especially want to stay in CA after your H retires from the military, I'd just rent for now. Then move somewhere with a lower COL when he retires and buy a house there.

Do you mind if I ask where you moved to? I really miss my family but we both have been thinking for years that we really don't want to go back (SoCal isn't what it was when I was little). It's just so hard to tell family that. Especially my dad. I can tell he really gets upset when I mention us retiring somewhere else. We really loved WA and TX. WA I think would be a good compromise because trips "home" are reasonable.

KAdams767 · February 2017

hoffse said:

KAdams767 said:

hoffse said:

I will add - most people out there fall in the 9% bracket for state income tax, and this will include your retirement income.

There's a reason retirees move to Florida. There is no state income tax there and the sales and property taxes are reasonable. Compared to California, you are experiencing an immediate 9% savings of all your earnings if you move to Florida (or Texas, Tennessee, etc.). That means you can afford to save less for retirement or ride out a downturn more successfully.

Sorry, but LOL at this. There are a lot of reasons people may prefer California to Florida. HCOL areas aren't popular just because people don't realize it's cheaper elsewhere.

I get that, but this is something she should keep in mind. It's one thing when the job demands it (silicone valley). It's another thing entirely when people are making choices for retirement and have flexibility to move.

9% is significant. It can work out to hundreds of thousands of dollars over the course of a retirement.

I swear I am not trying to be contrary, but...no. I live in NY, land of really high taxes of all kinds. I live here by choice, not because my job demands it. I have flexibility to move, both now and in the future. Hundreds of thousands in savings be damned, some places are not and likely will never be, on the table.

brij2006 · February 2017

hoffse said:

Stephanie2167 said:

hoffse said:

Read up on California proposition 13 before you buy anything. Personally, I would rent.

Even if we don't plan to leave? This move would be his last.

I would not retire in California. There are so many other states that treat retiree income significantly better, have a much lower cost of living, and that still have nice weather, etc.

The problem with prop 13 is that property taxes are reset every time you buy. So whatever you are seeing for property taxes is based on the previous owners' cost basis. This helps people who bought years ago and never plan to buy again, but for people buying now it locks in a pretty high tax rate forever. House prices are so inflated there, and prop. 13 locks in the tax rate based on your sale price regardless of what the market actually does in the future.

I have a bunch of family who live out there. They bought houses before the most recent silicone valley boom. Many of them are approaching retirement age, and they want to downsize, but prop 13 means they would be paying higher property taxes for a much smaller property if they did so. Most of them have decided to move out of state when they are ready to pull the trigger and downsize.

Learn something new every day. And that would absolutely suck. Especially while the market is so inflated. I would hate not being able to fight my property taxes at all.

FutureMrsMerati · February 2017

Sorry for lengthy response, hope it's helpful! We live in a very expensive part of CT that's an NYC suburb and had to result to purchasing a foreclosure to be able to get into our area as well. I would caution you to stay away from real estate sites like Zillow and Trulia because in my experience, those "pre-foreclosure" listings rarely make it to an actual foreclosure as it can take a long time for them to work their way through the court systems, and some are resolved along the way. Some pre-foreclosures are on there for years. Our primary sources for true and current foreclosure properties were a couple of websites: www.homepath.com (free) and www.hudhouses.com (free trial). Homepath is a great resource because it's a Fannie Mae website and offers a 20-day buyers only period when homes are first listed where investors and flippers aren't allowed to bid on properties.

We ended up purchasing a home that we found on Homepath that had 3 other offers on the first day of the 20-day buyers only period, and could not do a traditional mortgage because the house was unlivable. We resorted to using an FHA 203(k) Rehab home loan.

Pros:
- Our offer was attractive to the seller because they knew we wouldn't have a problem getting mortgage approval due to home condition.
- Financial flexibility to be able to include renovation costs into mortgage which allowed for us to finance at our low rate instead of coming up with upfront payment for all work performed

Con:
- Due to renovations being included in the mortgage, the closing did take a month longer than the 60 day closes for most traditional mortgages. That extra month was needed to align with our contractor and set prices for the renovations we did, as they needed detailed information to be able to track for the draws on the renovation funds.
- Rate was slightly higher than traditional mortgage because of the risk of underwriting a mortgage for a home that's unlivable. Rate differential had very little impact on our monthly payment.

Good luck with your foreclosure! Ours is now stunning with a significant amount of equity, so although it was definitely a more painful process than purchasing a move-in ready home, we have 0 regrets and would do it again.

For what it's worth, @hoffse definitely has a valid point about Prop. 13's effect on taxes and the real estate bubble that is California. I had a job offer at one of the big companies in Silicon Valley and we decided against it because we couldn't maintain our standard of living even with the new salary, despite coming from an already ridiculously expensive area. That being said, home is home, and no one could blame you for wanting to be close to your family

julieanne912 · February 2017

As others have already stated, the reason it's difficult to purchase a foreclosed home with VA or FHA is because of condition issues. Now, not all foreclosures have condition issues, but the majority do. VA is the pickiest out of all of them, I've even seen a VA appraiser call out stuff like, a bump in the carpet, as a tripping hazard that needed to be fixed before closing (in that case the carpet just needed to be stretched.. couple hundred dollars max).

I grew up in Central CA, I still have a lot of friends there. My folks are there, although they're moving here to CO this summer to retire. The COL is actually lower where they are than it is here, but the taxes are way less, and things like healthcare are better here.

In my husband's line of work, many of the jobs are in the Bay Area. We've talked about it a few times, and have agreed we would not ever relocate back there if they didn't offer the ability to work remote, even if he was making way more money, because we enjoy our way of life here in CO, and while the COL here isn't low by any means, we would need to be millionaires to maintain it in the bay area. We have a friend who got a job at Google, paying over double what he made here. He still lives with a roommate there.

julieanne912 · February 2017

Oh and yes, "pre-foreclosure" houses may not ever make it to foreclosure. It just means that the bank has initiated foreclosure proceedings (public record). It could take years for the house to actually hit the market as the foreclosure, if it ever does, as many will do a modification, or they'll short sell it before it makes it to the actual foreclosure.

short+sassy · February 2017

Stephanie2167 said:

short+sassy said:

I've purchased two foreclosures. The closing process wasn't any longer for either of them, but it can be. @brij2006 is right, it's rare that foreclosures are in the kind of perfect shape they need to be for a VA or FHA loan. But, as long as they're in fairly decent condition, you can get a conventional loan. Those typically require at least a 5% down payment, but you'll also need to pay private mortgage insurance (PMI) if the down payment is less than 20%.
Plus, there will probably be repairs that need to be made. I've viewed a lot of foreclosures and have never seen one that didn't need something.
One thing I would avoid like the plague, especially in CA, is short sales. A short sale is when the owner is still selling the property, but the sale won't cover their outstanding loan. So their bank needs to agree to the sale also. I've heard of buyers not even hearing a response on their offer (on the bank side) for months.
It's very irritating when houses for sale don't have pics. Do you have an agent in CA? They can usually at least get the scoop on condition/repairs needed.
I grew up in So CA and moved away after I graduated from college because of rent/home prices. So obviously I'm biased, lol. But, unless you all especially want to stay in CA after your H retires from the military, I'd just rent for now. Then move somewhere with a lower COL when he retires and buy a house there.

Do you mind if I ask where you moved to? I really miss my family but we both have been thinking for years that we really don't want to go back (SoCal isn't what it was when I was little). It's just so hard to tell family that. Especially my dad. I can tell he really gets upset when I mention us retiring somewhere else. We really loved WA and TX. WA I think would be a good compromise because trips "home" are reasonable.

Sorry I didn't get back to you sooner. I haven't been on the site since last week.

I moved to New Orleans, LA. About 17 years ago and have never regretted it. Especially after I got into real estate investing a few years ago. If I'd stayed in CA, I'd probably still be saving for a down payment to buy my own home and wouldn't have even been able to think about buying rental properties.

But certainly there are tons of places in the country with jobs and a COL substantially less than So. CA. Texas is certainly one of them. Though their property taxes tend to be high there, from what I've heard. For WA, if you're near Seattle, that is going to be a HCOL probably not much better than CA. Though I'm not familiar with the rest of the state.

It is a bummer to live far away from family. I definitely get that. But, at least for me, that wasn't worth financially struggling for rent or a mortgage most of my life to stay there. Sure, I'd probably be making more money, but not nearly enough to make up the difference.

Just for fun, check airfare rates and length of time for WA to CA and TX to CA. Dallas is a hub and Houston is a hub for Southwest. I almost always have to layover in one of those cities on my trips back home. I'd imagine they're mostly pretty cheap, direct flights and may not be that much longer than from WA.

short+sassy · February 2017

Seconding @FutureMrsMerati, Homepath is the bomb for finding deals. Though you'll almost always need an FHA 203(k) loan. I've always gotten the impression that is where Fannie Mae foreclosures go to when it is known they need substantial work. HUD is another GREAT resource. I've seen homes on there that seem to be in decent condition and could be purchased with conventional financing, rather than a FHA 203(k). Here is their link to the main page for homes for sale:

https://www.hudhomestore.com/Home/Index.aspx

I can't TELL you how many times I've seen a smoking awesome deal on the MLS and I'm all ready to call my agent to get an offer in fast. Only to look more closely and it's a HUD home that is only available to owner occupants.

My H and I even talked about strategizing and buying a HUD home, rent our personal home out and live in the HUD for the required one year, then sell the HUD home for big profits and start over again. But decided, despite the profit potential, it was just too much hassle and would drive us nuts.

jtmh2012 · February 2017

I have a friend in the Seattle subburbs. Her husband works for Amazon. They just paid $600k for a ~1700 sq ft that looks like it was from the 70s and from what she said that was the low end oddball for the neighborhood. My house here in VA cost me half that and I have double the space

Her and her family do Southwest and Alaska Air all the time between seattle and somewhere in southern california. Pretty sure it's non-stop.

MommyLiberty5013 · February 2017

With WA many Seattle folks are jumping ship and moving to Tacoma, which is still on the Sound and a lot cheaper. For example, my sister's in laws sold a teeny house in an elite Seattle neighborhood for around $1.5M. Then they bought an adorable and larger craftsman home in Tacoma with more yard for about $300k. My sister and her DH just bought a home there too for about $215k, and in a year other similar homes on their street are selling for $30k more, so their house value has shot up. Many families are fleeing Seattle for Tacoma.

short+sassy · February 2017

MommyLiberty5013 said:

With WA many Seattle folks are jumping ship and moving to Tacoma, which is still on the Sound and a lot cheaper. For example, my sister's in laws sold a teeny house in an elite Seattle neighborhood for around $1.5M. Then they bought an adorable and larger craftsman home in Tacoma with more yard for about $300k. My sister and her DH just bought a home there too for about $215k, and in a year other similar homes on their street are selling for $30k more, so their house value has shot up. Many families are fleeing Seattle for Tacoma.

That's really interesting! I knew Tacoma would be cheaper, but I've always assumed only by a little bit. But that's a big difference!

brij2006 · February 2017

MommyLiberty5013 said:

With WA many Seattle folks are jumping ship and moving to Tacoma, which is still on the Sound and a lot cheaper. For example, my sister's in laws sold a teeny house in an elite Seattle neighborhood for around $1.5M. Then they bought an adorable and larger craftsman home in Tacoma with more yard for about $300k. My sister and her DH just bought a home there too for about $215k, and in a year other similar homes on their street are selling for $30k more, so their house value has shot up. Many families are fleeing Seattle for Tacoma.

We really noticed this trend in Nashville when we were looking at moving there. It isn't as bad as Seattle, but the suburbs of Nashville are growing and expanding at a rapid pace and they can't build fast enough for the growth that's happening there. So the housing prices are inflated right now.
It was part of weight in our decision on whether or not to move our family there. What we could afford now without too bad of a commute to my office, could have easily been $100k more when we were ready to buy a year from now. They have inflated that quickly.

Home buying - Foreclosure

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