some house buying questions and advice needed

In My Humble Opinion (IMHO)
#1

I’ll probably be relocating with teh family to the Seattle area. Looking on the east side. Anyhoo, I’m a newbie for US home purchasing and looking for some advice and questions answered. Access to the right school and work are my main drivers, and I haven’t figured out the schools yet (Lake Washington School District most likely). Ideally, within about a 5 mile radius of work.

I can do a $2-300k down payment but probably don’t want to go over $500k total price (but we could afford more). 2,000 sq foot + garage + yard will seem huge to us after living in Asia.

Anyhoo, would appreciate anyones thoughts, shared experience and advice.

What is a bank owned home? Are these generally a “good deal”? What should one look out for on a bank owned home?

What is a short sale, how does it work, and what to look out for?

what kind of tax break does one get on interest payments?

for the 1ST TIME HOMEBUYERS CREDIT, there is a salary cap. Is this based on the previous year’s salary or current year’s salary?

#2

I watch a lot of HGTV, and from what I’ve gathered, bank owned homes and short sales can take longer than a “normal” purchase because there’s more bureaucracy involved - obviously the bank wants to get all their money, but they will take a loss to unload the property. If you have the time to wait for the process, you can potentially get a good deal.

When you do itemized deductions, you list all the interest you pay on the Schedule A form, and all of your deductions are subtracted from your income. It’s not a 1-for-1 tax reduction, so if you pay $10K in interest, that doesn’t translate to $10K lower tax bill.

And here’s the IRS info about the first time buyer’s credit.

The best advice I can offer you is to get a professional home inspection and be sure the sale is contingent on a satisfactory inspection. You’ll want an inspector who isn’t associated with the seller’s agent - our buyer’s agent suggested one for us, and we were pleased with him.

Happy hunting! I don’t know anything about Seattle, but we have bought a lot of houses over the years…

#3

My friends bought a bank-owned home in October. They were supposed to close the first week in November. Then the second. Then the third. It’s now December and they might not be able to move in until January.

They have plenty of cash and a plenty good credit score. If they didn’t have a condo to unload, they’d be out on the street right now.

So it seems what FCM has seen on HGTV about bank-owned homes is spot on…

#4

Second the advice about home inspection. You might also want to check if the house is in a flood zone, www.floodsmart.gov .

Happy house hunting!

#5

Good for you for buying a smaller house than a lot of people would consider - 2000 square feet is plenty of house, in spite of all the single-family homes coming in at 5000+ (especially if you have a full basement). You have to clean and heat all that space, even if you don’t need it. :slight_smile:

#6

Bank owned home.
It is a home that the bank has completed the forclosing on. The bank is the sole owner. Can they be a good deal, depends. If the value of the home is more than what was owed to the bank it can be. If the loan was more than what the house was worth then it depends on the bank. A lot of banks are getting so many homes back and they do not know what to do. They can a problem when no one at the bank wants to make a descision. And it can depend on the condition of the house.
When we were looking in San Jose some of the houses were nice but some were going to require a lot of work and clean up. We found a nice house but the furnace had been removed so no one was making any offers, I knew it would cost about $5000 to install. At first we passed the asking price was too high. But the houses we were making offers on were getting better offers. My wife wanted to go back to the no heat house and look again. The bank had lowered the price. We offered a lower price by about $8000 they accpted. After the mechanical inspection we asked the bank to install forced air heat. This is were we ran into trouble. No one could make a descision to accept putting in the heat or not. We were dealling with up to 4 different people and each was wanting the other to say yes or no. My agent ended up calling the bank and talking to someone higher up the chain of comand. He told him that they were about to loose the deal if no descision could be made. The bank finally signed the papers and we closed in normal time.

Short sell
A short sell is where the bank allows the owners to sell the house for less than what is owed to the bank or banks. The problems are and no one at the bank wants to be blamed for agreeing to letting the bank loose money. And more than one bank can be involved. My agent has seen short sells take up to 6 months before getting an answer. He had seen offers not be accepted and the house go into forclosure, then be put on the market for less than any of the short sell offers. His advice was stay from them unless they are really a good deal on a house you really wont. And keep looking while the bank is thinking about your offer.

Tax break on interest.
If you use schedule A, it is deducted from your income. If you pay $10,000 in interest and are in the 25% bracket it will reduce your taxes by $2500.

#7

I found this site to be invaluable for scouting neighborhoods:

http://www.bestplaces.net/

You probably also need a good ZIP code listing, as many search engines go by ZIP code for searching databases.

This site lists house prices nationally, although quality of the listing sucks when you get the low end.

A much better site is one hosted by the real estate agents in the area, but they’re a little harder to find. Try “mls lookup” or “mls database” plus the city you are aiming for.

#8

You are well-advised to avoid short sale and bank-owned homes, particularly in this economic climate. Even with a cash purchase, banks are notorious for moving very slowly to approve the sale. If you need to obtain financing, it’s even worse and can take up to six months to get the damn thing through the approval process. This wreaks havoc with potential buyers on a variety of levels. Talk to your realtor prior to looking at these.

Secondly, bank-owned homes don’t require any sort of inspections and banks don’t have to warranty any aspect of the place. It can be completely eaten up with black mold and the bank will be held harmless for any repairs or if the home has to be demolished. Be very cautious.

#9

thanks all for the feedback. Looks like the short sale and bank owned are easy to cut out of the search.

#10

We are closing this week on an REO (real estate owned aka bank owned) and have had a very positive experience. it was a 30 day close, and we wrote into our offer that they’d pay all of the closing costs.

In my experience and what I’ve heard from real estate agents, shortsales are horrible but REOs tend to be easy. On shorts, the homeowner will accept your offer but then has to convince the bank to agree to lose money. On REOs the bank has already lost the money and now wants to recoup what it can - motivating it to move faster. And on REOs the bank sets the price so you know what they really want. Well more or less, we did bid on some REOs that were way under-priced and went for up to 100K over asking but we suspect that was sellers agents trying to cause bidding wars.

Anyway…

We offered on a shortsale last April. In November we heard that the bank had approved the short - but by then we’d found the place we are actually buying.

If I had 2 or 300K to put down though I’d look for a traditional sale, just because it is easier to deal with a person - who is presumably eager to sell, rather than with a bank. And traditional sales are going to be fixed up for a sale, whereas a REO may be a bargain but will not have been repainted or recarpeted etc.

Finally, all that said, the real estate climate being what it is now, it may be hard for you to even find a traditional sale. Again we’ve been in the market since April in the SF Bay area and for months it was 80% shorts or REOs and 20% traditional. Anyone who can possibly hold out, is not selling right now, you know? So while the market in Seattle is probably hopping, you’ll want to do some research into how many really are traditional sales. And the traditionals will probably go quickly and over asking, for all of the aesthetic reasons I mentioned above.

Good luck to you!

#11

Find out aout state and/or local laws - they can be problems.
Bank-owned (REO - Real Estate Owned) can go as smoothly as any private party sale - by the time they have it sit on MLS for a few monhs, they are ready to move - a sale is a credit, although not (nowadays) enough to offset the loss they have already taken (I paid well less then half of what the bank had lent on this one) this was a standard close, they even fixed a major item - most lenders want as-is offers on REOs - there was a time when they could get them…
Another saying avoid shorts - there may be more than one lender to deal with. Next door is a short - has been on the market for a year now. Traditionally, lenders demanded that the mortgage be kept current before they would consider a short sale.

#12

We bought on the Seattle Eastside in July, a little higher than CG’s price range but not all that much. There were many homes available that were not short sales or REOs, and we paid $75k less than the original asking price on the house we bought (not a short or a REO, pretty fast closing). This market is definitely not like the Bay Area.

CG, if you want to contact me offline with any questions about neighborhoods, etc., feel free. I’ve only been in the Seattle area for five years, but I have a reasonable idea of where things are. We were fairly happy with our realtor if you need a recommendation.

#13

Some of this is wrong. The only problem we had was during the offer counter offer part of the buy. And that involved how much the bank would pay for the new heating system. Most REO go through the same as between private parties. The time it took was not anylonger that if it had been a private person.

The buyer can require an inspection. We did. And yes they will not be held liable for faults that they do not know about, and they do not look on their own. But in buying any house the buyer should do an inspection.

#14

Don’t cut out the REO’s. There are some good buys out there.

#15

I agree, don’t cut out the REOs. The risk is pretty minimal, and you could save tons of money. We’ve bought a few REOs over the years, and never had a problem. Always sold later for lots more money.

#16

REO maybe worth looking at. I saw a craig’s list posting for a bank that was doing a “walking” tour of 6 REO homes near where my office will be. When I’m in country, I’ll give those a whirl.

what’s the general process on an inspection? Find an independant inspector, then pay the fee ($100?) or do you split the fee with the seller? If something comes up, then either have it fixed prior to closing or avoid the property.

Enugent, thanks for the offer and I sent an email to your profile addy

#17

Generally the buyer arranges the inspection and pays for it. I would be there when any house I am buying is being inspected. Also I will do a pre inspection. I want to see if the inspector will find something that I missed.Depending on what comes up. Two years ago I looked at a property that needed about $100,000 of repairs, because of problems with the seller our last offer to the seller was they complete all the repairs be for the close of escrow. Never heard back from them and the deal fell through.

Your purchase contract should have conditions clause in it. If the housee does not pass inspection before removing the conditions you request a new condition, condition A to be repaired by seller before closing. The seller my counter with condition A being repaired with seller only paying half or up to a certain amount.
#18

In many areas, they have special programs for 1st time homebuyers. Look into them.

I would suggest renting for a while 1st, get the feel of a neighborhood.

#19

The class sounds like a very good idea, especially in the US where the real estate market has gone very strange (from everything I’m hearing).

#20

Wrong for you, perhaps. Banks are not required to disclose anything in this state, and inspectors are not going to know whether or not a freeway is going in next door soon or if the place was built on a cemetery.