Gary Wuestenberg's Blog

Welcome back to my weekly blog. This week I want to talk about FHA financing and buying REO properties. First of all FHA financing is way for buyers to purchase a property without having a lot of money to put down. It requires a minimum 3.5% downpayment and the loan is backed by the government. Its a great way to buy a house for a first time buyer however there are some restrictions.  FHA guidelines require that the property be in safe liveable conditions. That means all electrical and water must be working properly, the house must have a clean pest report, no broken windows or doors and if the kitchen has a spot for a stove/oven and or dishwasher then they need to be installed and working. The roof needs to be in good condition and leak free.

That brings me to buying an REO with FHA financing.  As I said in my last blog most REO properties are in some sort of disrepair and are sold AS-IS. Getting the banks to agree to bring the house up to FHA standards isn’t easy but not impossible. Once a property has had inspections and some sort of damage or defects has been found it must be disclosed to any future buyers and it is in the best interest of the seller to agree to do the repairs or agree to credit for the repairs with their current buyer. Now if you are using FHA financing, repairs would have to be done in order for the transaction to be completed. Another issue with FHA financing is that there is a case or file # attached to any property in which a buyer is using FHA. That file # stays with the property even if the buyer doesn’t purchase the house. So another reason for the seller to agree to repairs. 

So in short, FHA financing is possible with REO properties. Not easy but possible. Knowing these things are benificial when negotiating your purchase of an REO or any other property and I’ll go into that in my next blog.

Thanks for reading!

First of all if you are reading this, thank you. Also, if you ARE reading this you probably know what an REO is. REO stands for Real Estate Owned – property owned by a bank after foreclosure. I am not here to tell you about which REO’s to buy but rather how to buy the REO you want. This is the first blog on this topic.

REO’s are good values as long as you do your homework. A lot of these properties are in disrepair and need some kind of work to make them a nice home. The banks like to sell these properties AS-IS. In other words they do not want to do any repairs. That doesn’t mean they won’t do any repairs, it just means they don’t want to. So don’t be afraid to ask for repairs. Legally, once something is discovered on a property, like a leaky roof or faulty windows or even foundation issues or termite damage, it has to be disclosed. Whatever the condition is it has to be disclosed to you the current buyer or the next buyer. So once the problem is discovered the seller has to deal with it one way or another. They can agree to do the repairs, agree to split the repair costs, agree to credit for the repairs (this is the most common way for the bank) or they can do nothing at all and leave it up to the buyer to take the property as is. Depending on the amount of the repair cost and the type of loan most buyers won’t take the property as is. This leaves the seller in a precarious position because if they lose this buyer the condition is still there and has to be disclosed to the next potential buyer and any that come after that. And in this market with home values still dropping the seller is probably better off agreeing to repairs as long as they have a strong and committed buyer. So don’t be afraid to ask for repairs even if the property is marketed AS-IS. This is even more pertinent if you are using FHA financing. But that is for another blog.

Thanks for reading!