QUESTION:
Let's say there's a house listed at $80k, I've been pre-approved for a $60k loan and have $6-7k cash (yes, I have low income and live in a small town where home values are much lower than more populated areas)... how much do I make an offer for and how much do I put down? The house is bank owned and has been for awhile, so they should be willing to go down quite a bit. I don't have more cash, so don't want to have an offer accepted, only to find out I can't buy after fees & closing costs get factored in. I feel like this is a once in a lifetime opportunity for me & my situation and need to make it happen for the sake of my family.
Additional Details
$60k loan + my $6-7k cash = $66-67k. Is that what I make the offer for? Or do I make it for less because of the fees that get tacked on? If so, how much less?
ANSWER:
Your first step upon finding a home that you are interested in should be getting a preliminary appraisal done on the home so that you can find out what the home is actually worth rather than placing an offer based on what the seller would like to sell their home for. The selling price often has nothing to do with the actual value of the home. Sellers rarely have an appraisal completed prior to listing their home. As far as putting down everything you have, that's really not a good idea. The banks don't require it but you should hold on to 5% of the homes value for first year repairs. Many homes are sold with hidden issues and you should be sure to be prepared to cover the cost. You may want to look into FHA lending, down payments are much lower with FHA than conventional financing. Bank owned homes in today's market are not being sold for much less than arms length sales. The banks today are looking for market value i.e. appraised value. The banks typically know what a home is worth based on having a BPO done by a local realtor however, if you and your broker/appraiser is detailed enough to prove that the home is worth less than the bank has it listed for, the bank will reconsider and lower the listing price or accept your offer which has been submitted with your appraisal from an independent certified real estate appraiser. You mentioned that this is a once in a lifetime opportunity, many people have felt that way for the last five years or so as values have fallen. The value in your area could go further down or could go up, I'm not sure if I would call any area a once-in-a-lifetime opportunity. The new American dream is simply to be able to sell one's home without a short sale or going into bankruptcy. As an appraiser over the past 12 years, I have seen a lot of changes in the real estate market. I have seen people purchase homes for $80,000 when they thought it was an amazing by and that same home drop to $20,000. You may discover in time that this may not be the best time for you to purchase a home. Best of luck! Michael