Foreclosures have a reputation of being huge messes and a lot of work. We didn’t set out to buy a foreclosure but that’s what ended up happening.
We Bought a Foreclosure, Here’s Our Story…
The Hunt for The Perfect House Begins
Last May, our one bedroom apartment in Denver’s Capitol Hill neighborhood was starting to feel really, really small. Small was okay, but not having a place for anything (even after continually getting rid of crap) was the annoying part. Also, we had never really felt settled in that apartment because it was only supposed to be a temporary place. When we were still there a-year-and-a-half after our 6 month plan I knew we should start thinking about some other options. Plus, you can only listen to your neighbors do P-90X at midnight so many times before it starts to drive you nuts.
I contacted our credit union to see about getting pre-approved for a mortgage, and after we compiled all the numbers, filled out the application, and sent off a zillion of documents, we got ourselves pre-approved for a mortgage at a pretty good rate. (I was surprised when the mortgage underwriter thanked us for applying before we looked at properties rather than finding a place and then hoping our numbers worked with the houses.) Next, we called up our real-estate agent Jim Rodriguez, and told him, “We’re in the market for a house! Here’s what we have in mind. Can you help us out?”
Envision It to Make It Happen
I’ve got to stop the story here for just a second because I’ve got to tell you, if you’re looking for a place to live you MUST write out (or at least thoroughly think about) what it is you would like to find. I’ve done this twice and have both times found exactly what I was looking for. The first time, I said, “How about a loft that is nice and light and airy with two rooms, right in downtown Denver, and if it’s about $600-ish per month that’d be awesome too.” It was kind of a miracle when a place, THE PLACE, I had envisioned appeared. I could not help but say, “See! See! Can you believe this?! This is exactly what I had hoped for!” (The loft was part of Denver subsidized housing program that gets broke people, for lack of a better word;), into great places for reasonable prices.)
For the current house search I had this list of hopes: nice light (that’s the photographer in me), at least two rooms, hardwood floors, high ceilings, crown molding, character, centrally located, on the less expensive side (of course, right), and if it IS centrally located parking is a must because parking can be terrible/impossible.
Find the Right Agent
We started our official hunt for a place in June with our agent, Jim. He took us to look at place after place, and always offered tons advice and insights. He would advise us about the future sell-ability of properties and we were glad that we could wholeheartedly trust him and his experience. We knew/know that he had our best interests in mind and that it wasn’t just about making money- very important when looking for an agent. (On a side note: interview real-estate agents like you would for anything else. If you don’t trust them or like how they deal with you then keep that in mind because they will be negotiating on your behalf. They will be your voice to the other side throughout the entire process. Also, you might be spending a lot of time with them and they must be able to respectfully answer any and all questions. If you feel belittled or like they don’t really “get” you then move along. It’s not worth the trouble. There are plenty of great agents out there. Ask a friend, family member, or co-worker that you trust for their recommendations.)
The Hunt for the Perfect Place Continues…
Our house hunt continued on throughout the summer. Many times we would find a place we would like and then, it would be under contract almost immediately. Often times, the houses would be under contract the same day they went on the market. I’m telling you, it was (and continues to be, so I hear) extremely competitive and intense, and there is not much inventory (just a little real-estate jargon I picked up;) out there. We knew that if we liked a place we had to act fast. It’s definitely a seller’s market, and that can be scary as a buyer (well, it was for me). I kept thinking about how I didn’t want to overspend on a place and then be underwater right off the bat just because we bought when prices were so inflated. I kept thinking, “Buy low, buy low.”
And Then, It Happened
In August, Aaron sent me a link to a place that was actually one that I had seen in the beginning of our house search back in June. It had disappeared from the listings after I first saw it so I could only assume that it too had been purchased like all the others.
We set up a time to see the 2 bedroom, 1 bath foreclosed condo in central Denver, and we planned to met our agent outside the property later that day. We were hoping to get a single-family house but we were also open to the idea of a condo as long as it wasn’t in a massive complex with a similarly massive HOA fee (homeowner’s association. This place wasn’t a huge complex and we we also liked that it was brick (sturdy!). The building also happened to be constructed in 1907 so that could only mean one thing: character! (At least we hoped) We walked into the skunky smelling place that was painted a dingy mossy green and stared at the beautiful original, super-dark wood, crown-molding trim. There was faux antique lighting hanging from the ceiling, and there was huge custom bookcase in the dining room. We started exploring and wandered past the butler’s pantry (!) and into the hunter green 80’s kitchen. Then, we saw the 1st bedroom. We were disappointed to see that it was a non-conforming bedroom with no closets and that it was on the smaller side but we weren’t too surprised because we had come to find that it was how a lot of places were being advertised, slightly misleading. We started to make our way through the rest of the place when Jim, our agent said, “Wouldn’t it be great if there were two other real bedrooms?”
And that’s when it happened. I was standing in the hallway right in front of the bathroom, I looked left and saw a bedroom and then, to the right there was actually another bedroom. This is going to sound very dramatic but, tears came to my eyes. I was shocked to see that it was actually a 3 bedroom that they had listed as a 2 bedroom. I instantly knew that it was the place we had been looking for. It was also just so happened to be both the largest AND least expensive place we had seen.
With it’s high-ceilings, crown molding, hardwood floors, 3 (!) bedrooms, butler’s pantry, fireplace (decorative), front patio, back patio, and parking spot you better believe, I was sold. I imagined the place with gleaming white walls and trim, and modern light fixtures. I could see all the potential it had, and knew that it was a steal.
Our agent was able to pull records from the other units in the building to see when they sold and for what price. This information was used to help us decide if the property was priced right, and if we had any room for negotiation. We learned that the unit across the hall from us (a mirror unit) sold just 2 years before for 50k more that what the listing price was for this place. The one below us, sold for 30k more than this places’ listing price. Things were looking good.
One of the things I didn’t expect was that we would have to keep reapplying for the mortgage every 60 or 90 days to keep it up to date and to keep it from expiring. While that was very tedious it ended up working out in our favor because we were able to get an even lower rate than when we were first approved back in May.
Interest rates were at an all time low this last fall and for a 30-year fixed loan we got an interest rate of 3.3%. Our mortgage underwriter said that was the lowest rate for a 30 year fixed in 30 years and when I talked to him after a month or so after our closing he said that the rate went up the week after we closed. (Gosh, I’m feeling lucky or something.)
Making an Offer
We made an offer that was 5k less than the asking price (hey, gotta try right. I wouldn’t be a proper frugal blogger if I didn’t try to save some money). The bank came back with a counter-offer of the original listing price as if to say, “No, really, that’s what we want for it.” To which we said, “Okay.”
We put up the standard 1% earnest money, filled out all the paperwork with our agent, and ended up getting more back story on what had happened with the place. It was originally listed in June as a short-sale. Someone put in an offer and it was under contract shortly thereafter. Short-sales are apparently much worse than foreclosures because the bank fields offers for months and months and ultimately accepts the best, most-attractive offer. So that means that when the bank is waiting to see what the best offer might be the hopeful buyer is stuck there hanging. Most buyers don’t like having their lives in limbo like that so they skip out of the situation for a more sure bet. That’s what happened with this place. The short-sale process fell through, the bank took possession of the condo and then re-listed it 2 months later as a foreclosure.
Get Yo’ Self Inspected Before You Wreck Yo’ Self + The Appraisal
The inspection soon followed ($175) and we found out there were a ton of little things wrong with the property. Luckily though, nothing was major and there was nothing that we considered a deal-breaker. Our agent told us that banks never fix anything with foreclosures, and they are basically as-is so while we could ask the bank to fix something it would most likely be totally pointless.
The property also had to get appraised by our bank. We were happy that it came back at a value of over 10k what we were set to pay. That’s instant equity baby!
The Big Wait
So, from the end of August to our ultimate (and ever elusive) closing date at the end of November, we waited and waited.
Then, we finally got a closing date. Finally, the end was in sight. Until we found out that the previous owner had not paid her property taxes and there was a lien on the place by the city of Denver. Yay! Sigh. Crumble to the ground in defeat. The closing was delayed yet again, and this time for about a month.
Our agent assured us that this was good, that the property needed to be free and clear before we bought it, and while we of course agreed, it was just a long-drawn out process that we were hoping to be done with soon.
The last week of November we were told, “Okay, this Thursday we can close. It’s really going to happen this time.”
We ended up closing on the property 3 months after we put the offer in on the place. It was a long process and it took at least twice as long as a normal house purchase would have taken. Since then, we’ve painted the living room and dining room a bright, crisp white, Aaron has exposed a brick wall in the little room he has generously decided can be my Craft Room (!), and slowly things are starting to feel homier.
I’d have to say the worst part about the foreclosure buying process was having to keep re-applying for the mortgage, and not being sure when we were actually going to be able to do the closing. The best part? Knowing that we got a freaking SICK deal on this place, that we have instant equity, that we can update it (in time) to our specifications and tastes.
Overall, I’d say things worked out pretty well, and I’m excited to show you the house as it starts coming together more!
p.s! I totally forgot to mention this type of loan that we found out about early on in the process when we started to consider a foreclosure and it’s called an FHA 203k loan. It’s a loan for making repairs on a place. If you’re considering a foreclosure or a short-sale it might be something worth looking into.
Have you ever bought a foreclosure or would you consider buying one? If you did buy one, was your experience similar to ours, and did you learn anything that I didn’t mention?