When Trying to Buy a House After a Foreclosure

If you've already gone through a foreclosure, your immediate purchase choices are clearly limited and the alternatives you have at your disposal are never as good as getting a traditional loan. With that in mind, you can consider some less common ways to purchase that you may like:

Lease with an option to buy.
This type of contract is exactly as the name implies and can be closely described as a "rent to own" method of purchase. It allows a buyer to make monthly payments on the property and then purchase it at a predetermined price and date agreed upon in the original offer. The buyer may also negotiate to have a percent of the payments to go towards the down payment at the time of the purchase. A good lease option should last until the buyer has improved their credit enough to make them eligible for a loan.

Owner will carry, or all inclusive trust deed.
Many times in the purchase of a property using terms where the owner carries paper, a substantial down payment is usually obligatory. In fact, 20% or more down is not at all uncommon, especially if the buyer has really poor credit. In addition, the price for these houses is often higher than similar houses on the market. The idea is that the seller takes a risk by carrying the loan for the buyer with bad credit, but in return receives a higher price for their house than what they would have received in a sale with a traditional loan.

The buyer's has a window of opportunity to work on their credit during the time period that the owner has agreed to carry paper. If the contract says the seller will carry a note for 5 years, the buyer must have a new loan established within that time period. So essentially, if a buyer purchased a home that had a note carried by the seller for 5 years and at the end of the contract, the buyer could get a new loan one way or another, they would lose the property.

Hard money loan.
The catch with these types of loans it that the interest is almost always very high. The buyer should speak with more than one lender offering these types of loans, look over the current market prices, negotiate as low of an interest rate as possible, and decide carefully if it's the right choice. The market can be unpredictable when making long term purchases, but if prices are low enough that it still looks worth it, it's another option.

If you have not gone through a foreclosure yet, but know you are going to lose the property, it's never a good idea to walk away. A short sale is a much better choice, yet many home owners in default don't consider it when they get into financial trouble. One main benefit of doing a short sale was implemented by Fannie Mae. They established a policy that allows a home owner to get a new loan insured through FNMA in just 2 years after the short sale of their previous home.
However, if the home owner forecloses, their debt will not be excused for 5 years. What a huge difference.

HUD Foreclosure Incentives In California

There are some great programs for buyers looking for houses in California that they may not normally consider. Foreclosed homes aren't the only great deals out there and many regular bank owned homes don't have programs that are as good as some incentives offered by HUD.

$100 down payment.
If a buyer purchases a HUD home, they can pay as little as $100 down for most properties when using an FHA loan. This incentive is good for home occupant purchasers only and is not available to anyone receiving the Good Neighbor Next Door incentive. One small catch to this incentive is that if the buyer bids over the asking price, they will have to pay the difference between what the listing price was and what the bid amount was.

$1,000 allowance at the close of escrow.
Owner occupants can receive an allowance of $1,000 at the close of escrow by purchasing a property at the full asking price. This incentive allows buyers to use various forms of financing and still be eligable for this program. Purchasers can buying down their loan rate, or get a check cut at the end of escrow. However, the $1,000 incentive cannot be used towards the down payment of a property, nor any closing costs.

The good neighbor next door program.
HUD offers teachers, police officers, fire fighters and emergency medical technicians the opportunity to get a home at a 50% discount on a property. Those who purchase a home through the this program must live in the home for 36 months as their sole residence. Only homes located in the revitalization area qualify to be sold in the Good Neighbor Next Door program.

Even if you don't qualify for an incentive, HUD has some very nice deals on properties that should not be avoided. The main difference between a regular foreclosure and a HUD foreclosure is that you place a bid for HUD, where you put in an "offer" for regular listings.