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Bargain homes from the federal government

By   |  Posted in First-Time Homebuyers

Hey homebuyers, how does a $100 down payment grab you?

How about a 50 percent discount on an already bargain-priced home?

Or would you prefer 3.5 percent of the home price in closing cost assistance?

These are just a few of the incentives recently offered by Fannie Mae, Freddie Mac and HUD to encourage owner-occupants to buy their repossessed homes.

The foreclosures out on the market today include not only homes that have been foreclosed on by individual banks, but also homes owned by government agencies. All three agencies (Fannie Mae, Freddie Mac and HUD) have introduced incentive programs to entice owner-occupied buyers to purchase homes they have foreclosed on. Some incentives are also directed at Realtors to encourage them to show these homes to potential buyers.

Incentive programs vary by agency and by state, and some are offered for a limited time period. All three agencies offer homes first to owner-occupants, usually for 15 days, and then offer them to investors. All homes are sold "as is".

Buyer/agent incentives

Here are the current incentives (and their respective websites) from the three agencies for both buyers and investors of their foreclosed properties:

Fannie Mae's www.HomePath.com:

  • Buyers who intend to live in the property as their primary residence can receive up to 3.5 percent in closing cost assistance through October 31, 2011.
  • Some Fannie Mae homes have special financing through the HomePath mortgage or HomePath renovation mortgage, which require a down payment of just three percent.
  • Real estate agents representing the buyer of a Fannie Mae home can earn a $1,200 bonus until October 31, 2011.

Freddie Mac's www.homesteps.com:

  • Freddie Mac offers the HomeSteps SmartBuy program that includes a two-year home warranty and up to 30 percent savings on new appliances.
  • Freddie Mac was offering up to 3.5 percent in closing cost assistance, but this ended July 31, 2011. Some regional incentives may be available.

HUD's www.HUDhomestore.com:

HUD sales incentives vary by state. Some areas offer:

  • $100 down payments on HUD homes financed with an FHA loan
  • A sales allowance that can be used for closing costs, repairs or to pay down the mortgage balance
  • Bonuses for Realtors who sell property to owner-occupants
  • Good Neighbor Next Door program offers 50 percent off the list price of homes in revitalization areas to law enforcement officers, pre-Kindergarten through 12th-grade teachers and firefighters/emergency medical technicians who commit to living in the property for 36 months.

Condition of these homes vary

"The biggest difference between the agencies is that Fannie Mae and Freddie Mac clean up their properties," says Trevino. "They are usually in good condition and they try to sell them at market price."

Freddie Mac's "Good Neighbor Practices" ensures that their properties are secured, free of trash, cleaned inside and out and have regular lawn maintenance.

Trevino says that HUD homes, on the other hand, are sold "as-is, where-is", meaning they are typically in worse condition and lack appliances.

"HUD homes have often been vacant for as long as six months or more without utilities, so that will have caused wear-and-tear on the home even if it is not in bad shape otherwise," says Trevino. "On the other hand, these homes are usually priced below market. As long as the buyer is prepared for problems in the property, these can be a good deal."

Is buying a foreclosed home easy?

"There's a misconception out there that buying a government REO (real estate owned) is difficult," says Alicia Trevino, president and CEO of Century 21 Fine Homes and Estates in Mesquite, Texas.

"It can be complicated, but all a buyer really needs is to work with a professional Realtor who has experience with REOs and understands the programs."

Stacey Vilardi, a Realtor with Coldwell Banker Residential Brokerage in East Brunswick, N.J., says REO buyers may be eager to take advantage of today's mortgage rates and discounted home prices, but she warns these are "buyer beware" purchases that require professional assistance.

"Buyers need to do their due diligence and work with a reputable settlement attorney to make sure the title is free and clear," says Vilardi.

"In addition, every buyer should have a home inspection, even on a property being sold 'as is'. It's important to know what you are getting into."

Insider advice on buying distressed real estate

REOs may not be a wise choice for first-time homebuyer says Trevino.

"Sometimes young people without a lot of money want to buy a HUD home because they believe it is a bargain, but if you don't have a background in construction and some funds to pay for repairs, it may not be the best buy," says Trevino.

"An REO can be a good buy but you need to understand the risk. People who are looking for the deal of the century might be disappointed because the property may need too much work," Vilardi says.

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