April 1, 1997
This guide was originally written for and published by Fannie Mae.
As a prospective home buyer, you face many options in your search to find an affordable home. One of those options today is the purchase of a home that has been foreclosed and currently is owned by a mortgage investor who must sell it. This option provides a way to buy more house for your money than you otherwise could afford.
These foreclosed properties are owned by a variety of mortgage institutions — Fannie Mae, the Federal Housing Administration, the Veterans Administration, savings and loans, commercial banks, and others. They have acquired the properties because they held the mortgages of individual borrowers who could not meet their obligations — mainly because of economic conditions like the 1981-82 recession, the rapid decline in housing inflation in this decade, and the depressed conditions that plague the nation’s “energy belt”.
Owning foreclosed properties is not the preferred business of these institutions; the management and care of these homes drains their resources and costs them money. Therefore, most want to sell foreclosed properties as rapidly as possible. They are doing so in a variety of ways, including using networks of real estate agents and periodic auctions in various communities.
Fannie Mae is offering this Guide to help you begin looking for what could be the best housing bargain you will find in today’s market.
We have received thousands of calls from the public over the past year about buying foreclosed properties. This Guide reflects the questions that we are asked most frequently and our answers to them.
The major reasons are better price, better financing, and better selection.
Usually, foreclosed homes will be placed on the market at a fair price, a price that also is subject to negotiation between you and the owner. In addition, the owner is likely to offer attractive financing terms to buyers. For you, these factors can translate into getting more house for your money, or being able to afford a home that otherwise might be beyond your financial reach.
Generally, a wide selection of homes for families, including single-family homes and town houses, are offered. Condominiums also are available. The homes are located in a variety of neighborhoods in different parts of a community.
Obviously, the number and types of housing available vary in different locations. Prices of homes may vary from as low as $10,000 to several hundred thousand dollars. Many of these homes are relatively new; however, older homes are offered in some areas. In some instances, homes may require repair.
Yes. You want to be sure that the condition of the property is accurately represented by the seller; if the property needs repair, you need to know whether the condition of the property will preclude you from getting a mortgage loan to complete the sale. You also want the seller to be able to close the transaction in a timely manner and provide you with clear title when you become the owner.
Every buyer’s situation is different, of course, and buying a home is not something you should enter into without careful planning and analysis of your present and likely future financial situation.
You should begin this analysis by looking at your monthly budget to determine what you are spending presently for housing plus any installment debt, such as an auto loan. Compare these current expenses with the cost of carrying a “typical” home mortgage. In making these calculations, you should start with your gross income, i.e., your income before any deductions. You also may want to consider the possible benefits of tax deductibility of certain home ownership expenses.
To help you, we’ve included a Monthly Mortgage Payment Table at the back of this Guide. It shows monthly principal and interest payments for 30-year, fixed-rate mortgages.
If you are working with a real estate agent, he or she can assist you in “pm-qualifying” for a mortgage with a local lender. Essentially, that is accomplished by assessing your ability to pay for a home by calculating the monthly costs of home ownership and comparing them with your current income and how much you may be spending currently for housing.
Before you select a local mortgage lender, remember that it makes a lot of sense to shop around for the best deal.
Mortgage finance today is a highly competitive business, and obtaining the mortgage that is best for you will mean talking to more than one lender.
The real estate agent will assist you in evaluating the home you are interested in by comparing it with similar homes and the prices at which they sold in your community.
Your agent also wall help you determine what you can afford in a neighborhood or particular location. For example, the agent wall help you locate a home that is near good schools — if you have children — or near shopping and close to public transportation if that is important to you.
The material on the previous pages provides some general information about foreclosed homes and why buying one might be right for you.
If you have reviewed that material and think that you want to learn more about buying a foreclosed home, Fannie Mae is ready to assist you.
The inside front cover of this Guide tells a little about who we are and what we do.
While it may be true that there is no shortage of lenders and others offering homes for sale in your community at this time, we believe that purchasing a Fannie Mae-owned home has special benefits you should consider before you buy from anyone.
First among these is price. Fannie Mae properties are generally offered for sale at prices slightly below market value because we want to reduce our carrying costs by selling these homes quickly. We base the price on current independent appraisals and broker opinions.
Fannie Mae is willing to negotiate a fair price. We make a real effort to know all there is to know about the properties we are selling; we have a realistic attitude toward value and a strong commitment to making home ownership a reality for as many qualified people as possible — that’s our primary objective.
The second major benefit of purchasing a Fannie Mae- owned home is financing. As the nation’s largest supplier of home mortgage funds, Fannie Mae can — and will — offer competitive financing for our own properties through local lenders. Of course, purchasers of Fannie Mae-owned homes are free to obtain financing from any source they select.
Finally, there is our reputation, which speaks for itself. Fannie Mae has been in the business of providing mortgage funds for America’s housing since 1938.
Fannie Mae-owned homes are sold through local real estate brokers and their agents, or through real estate auctions. You may obtain a listing of properties and information on scheduled auctions in your area by calling our toll-free telephone number: 1-800-553-4636. (In Maryland, 1-800-221-4636.) These lines are open Monday through Friday between 9:00 a.m. and 5:00 p.m. Eastern Time. Or you may write to Fannie Mae Properties, P.O. Box 13165, Baltimore, MD 21203. When you call or write, please tell us your interest in the approximate size, number of bedrooms, price range, and location (county or locality). We will send you promptly a list of properties and the name and telephone number of our listing agent.
Fannie Mae also may advertise its properties in your local newspaper, and local real estate agents listing Fannie Mae properties may do the same. Radio and newspaper advertising are used to announce local public auctions of Fannie Mae-owned properties. This advertising includes information of the date, time, and location of the auction and how to obtain a list of the properties being sold. Leading national auction firms conduct these auctions for Fannie Mae.
You will find that the homes offered include a wide selection: two- and three-bedroom homes for families; town houses; larger homes with four bedrooms, and condominiums with fewer bedrooms. What is available will vary from community to community.
Many of the homes Fannie Mae has for sale are less than five years old. But, our inventory does include older homes and a variety of architectural styles and floor plans.
Frequently, in order to be competitive with other sellers, Fannie Mae repaints, repairs or replaces items, such as carpets and light fixtures. Fannie Mae also offers some “fixer-uppers”, which are priced accordingly.
Our experience has been that a substantial number of auctioned properties go to first-time home buyers, so you shouldn't pass up the opportunity to attend auctions and make a bid if you’re interested in a particular property. A cash down payment is required for all properties purchased at Fannie Mae auctions.
First, you need a little background on how Fannie Mae establishes the prices on the homes it owns and what you should consider before making an offer on a specific Fannie Mae-owned home.
As noted earlier, Fannie Mae uses two standard techniques for determining this value — the initial selling/listing price — of the homes it offers for sale. The first of these is an appraisal performed by an independent professional appraiser who takes an objective look at the individual house, compares it with other similar homes in the area, evaluates the condition of the home and the neighborhood in which it is located, and then develops a “fair” price for the property.
The second technique is a broker’s opinion on price. A real estate broker is retained by Fannie Mae to make an evaluation of the home in terms of what other, similar properties are selling for in the neighborhood or area.
With the help of your real estate agent, you should do the same thing: attach a value, or price, to the home in which you are interested. The more informed you are, the better buy you can make. The more effort you put into assessing the value of the home you want to buy, the more likely it is that you and Fannie Mae will achieve a “meeting of the minds”.
Start by obtaining and carefully reviewing a list of Fannie Mae-owned properties for sale in your area. Call the listed real estate agent or the agent of your choice for more information on any properties that interest you. Also, obtain listings for and attend public auctions of Fannie Mae-owned properties in your area. But act quickly. A lot of others are going to be doing the same thing!