Approach to Buying Homes in the Early Stages of Foreclosure


Think of the early stages of foreclosure as that period when a homeowner has has been served with a summons by the bank’s attorney(s). It is a period during which a homeowner, faced with having to make several decisions in relatively little time, may find it rather difficult to cope with the circumstances.

S/he has 30 days to answer the summons; since the lender has refused payments in any amount short of the full amount pass due, including tacked-on late charges and attorney’s fees, s/he has to raise the required amount and there’s no one to turn to for that amount of money needed.

S/he still must meet other pressing obligations and living expenses; e.g. utility bills, food, kids, work, etc., while being under pressure to – perhaps – find a place to relocate to should the worst case scenario becomes a reality. The homeowner needs help, and since s/he is still in complete ownership of the property, s/he alone is able to make the decision to sell.


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The question is, will you be the one who makes the deal with a homeowner in this type of situation? Will you approach this homeowner with the right offer and in the correct manner? If you keep in mind that a homeowner facing foreclosure has a financial problem (not a memory loss or sudden case of stupidity) and will listen to reasonable offers, you may be able to make a great deal for yourself.

Let’s face it, if there’s no equity in the property, you’re probably not going to even make a call. When there is enough equity to get you interested in the property you must take into consideration the homeowner’s circumstances and base your approach and presentation around those instead of your desire to grab everything and risk insulting the only person capable of making a deal with you on that home.

As an investor you know it’s a heck of a lot easier to deal directly with the homeowner instead of the lender, so you must be able to convince that individual that you are the ONLY one who is capable of providing a solution to the problems s/he now faces.

You have the answers! You have the money to make a deal whereas the bank takes the home and s/he gets nothing. However you must convey that you will make the transition as smoothly as is possible under the circumstances.

Making your best efforts not to totally deplete the little dignity that homeowner has left will go a long way towards you making the deal to buy that property instead of another of the homeowner getting tugged and pulled in all different directions by the many real estate salesmen, investors and mortgage reps, and then finds it difficult to make any decision at all.

There’s a deal to be made with homeowners whose homes are in the early stages of foreclosure. The right approach will usually help you make a great deal.

When Is Refinancing Into A New Mortgage Not Advisable?


Many homeowners make the mistake of thinking that refinancing is always a viable option. However, there are times when refinancing into a new mortgage is really not advisable. Homeowners can make a significant financial mistake by refinancing at an inopportune time. There is a couple of classic examples of when refinancing is a mistake.

One occurs when the homeowner does not stay in the property long enough to recoup the cost of refinancing into a new mortgage. The other is when the homeowner has had a credit score dropped since the original mortgage loan. Other examples are when the interest rate has not dropped enough to offset the closing costs associated with the refinance mortgage.

Recouping the closing costs

In determining whether or not it is worthwhile take out a refinance mortgage, you should determine how long you’ll have to maintain ownership of the property in order to recoup the closing costs. This is significant especially in the case of you intending to sell your property in the near future. There are refinancing calculators readily available on the Web which will provide the amount of time you will have to retain the property for making a determination whether it’s worthwhile to get a refinance mortgage.

These calculators require you to input information such as the balance of your existing mortgage, the existing interest rate and the new interest rate, after which the calculator returns results comparing the monthly payments on the old mortgage and the new mortgage as well as information about the amount of time required for you to recoup the closing costs associated with refinancing into a new mortgage.

When credit scores drop

If you believe that a drop in interest rates is a signal for you to immediately refinance into a new lower rate mortgage, you may need to take a step back and examine the circumstance. If the new lower interest rates are combined with a drop in your credit score, the resulting refinanced mortgage may not be favorable to you simply because your current credit scores may not be favorably compared to the credit scores at the time of your original mortgage, then refinancing into the new mortgage may not be to your benefit. However, depending on the amount interest rates have dropped, you will have to take out the calculator again to help you make a good decision.

Have the interest rates dropped enough?

A common mistake many homeowners make in regard to refinancing into a new mortgage is to refinance whenever there is a significant drop in interest rates. This can be a mistake because the homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings. Homeowners often make this mistake because they fail to consider the closing costs associated with refinancing the home.

These costs may include application fees, origination fees, appraisal fees and a variety of other closing fees and charges. These costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates, so it requires careful thought about refinancing into a new mortgage even when there’s a significant decline in interest rates.

Refinancing into a new mortgage can be beneficial even when it is a “mistake”

In reality, refinancing into a new mortgage is not always advisable, but some homeowners may still opt to refinance even when it’s technically a mistake to do so. This classic example of benefitting under adverse conditions is when a homeowner refinances to gain the benefit of lower interest rates even though s/he winds up paying more in the long term. Under these circumstances, the lower interest rate is not low enough to result in an overall savings, but the homeowner benefits anyway because s/he consolidates a considerable amount of short term debt into a long term refinance mortgage.

Although most financial advisors may warn against this type of financial approach to refinancing into a new mortgage, homeowners sometimes go against conventional wisdom to make a change which may increase their monthly cash flow by reducing their overall debt obligation payments. In this situation the homeowner is making the best possible decision for his/her personal needs.