By: G. M. Filisko

Get prequalified for a loan and set aside funds, and you'll be ready to purchase a foreclosed home.

When lenders take over a home through foreclosure, they want to sell it as quickly as possible. Since lenders aren't in the real estate business, they turn to real estate brokers for help marketing their properties. Buying a foreclosed home through the multiple listing service can be a bargain, but it can also be a problem-filled process. Here are five tips to help you buy smart.

1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers. They list them with real estate brokers. You can work with a real estate agent who sells foreclosed homes for lenders, or have a buyer's agent find foreclosure properties for you. To locate a foreclosure sales specialist, call local brokers and ask if they are the listing agent for any banks.

Either way, ask the real estate professional which lenders' homes they've sold, how many buyers they've represented in a foreclosed property purchase, how many of those sales they closed last year, and who they legally represent.

If the agent represents the lender, don't reveal anything to her that you don't want the lender to know, like whether you're willing to spend more than you offer for a house.

2. Be ready for complications. In some states, the former owner of a foreclosed home can challenge the foreclosure in court, even after you've closed the sale. Ask your agent to recommend a real estate attorney who has negotiated with lenders selling foreclosed homes and has defended legal challenges to foreclosures.

Have your attorney explain your state's foreclosure process and your risks in purchasing a foreclosed home. Set aside as much as $5,000 to cover potential legal fees.

3. Work with your agent to set a price. Ask your real estate agent to show you closed sales of comparable homes, which you can use to set your price. Start with an amount well under market value because the lender may be in a hurry to get rid of the home.

4. Get your financing in order. Many mortgage market players, such as Fannie Mae, require buyers to submit financing preapproval letters with a purchase offer. They'll also reject all contingencies. Since most foreclosed homes are vacant, closings can be quick. Make sure you have the cash you'll need to close your purchase.

5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no longer make mortgage payments. Be sure to have enough money left after the sale to make at least minor, and sometimes substantive, repairs.

Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they won't give you credits for repair costs (or make additional repairs) because they've already factored the property's condition into their asking price.

Lenders will also require that you purchase the home "as is," which means in its current condition. Protect yourself by ordering a home inspection to uncover the true condition of the property, getting a pest inspection, and purchasing a home warranty.

Be sure you also do all the environmental testing that's common to your region to find hazards such as radon, mold, lead-based paint, or underground storage tanks.

Other web resources

How to buy a foreclosure from Fannie Mae (http://www.fanniemae.com/homepath/homebuyers/buying_fanniemaeowned.jhtml)

What to consider when buying a foreclosure as your first home (http://www.nolo.com/legal-encyclopedia/article-29589.html)

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By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.

Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.

Instead of just taking out the biggest mortgage a lender qualifies you to borrow, consider how much you want to pay each month for housing based on your financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Still not sure how much you can afford? You can use the same formulas that most lenders use, or try another of these traditional methods for estimating the amount of mortgage you can afford.

1. The general rule of mortgage affordability

As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.

To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.

2. Factor in your downpayment

How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home's cost, you may not have to get private mortgage insurance, which costs hundreds each month. That leaves more money for your mortgage payment.

The lower your downpayment, the higher the loan amount you'll need to qualify for and the higher your monthly mortgage payment.

3. Consider your overall debt

Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn't total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn't exceed 41% of your gross annual income.

Here's how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don't top 41%, or $3,416 in our example.

4. Use your rent as a mortgage guide

The tax benefits of homeownership generally allow you to afford a mortgage payment-including taxes and insurance-of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

Here's an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you're struggling to keep up with your rent, consider what amount would be comfortable and use that for the calcuation instead.

Also consider whether or not you'll itemize your deductions. If you take the standard deduction, you can't also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a "what if" tax return, can help you see your tax situation more clearly.

More from HouseLogic

More on the mortgage interest deduction (http://www.houselogic.com/articles/mortgage-interest-deduction-vital-housing-market/)

More on the tax advantages of homeownership (http://www.houselogic.com/articles/tax-tips-homeowners-preparing-2009-returns/)

 Other web resources

A worksheet on home affordability (http://www.ginniemae.gov/2_prequal/intro_questions.asp?Section=YPTH)

Freddie Mac information on home affordability (http://www.freddiemac.com/corporate/buyown/english/preparing/right_for_you/afford.html)

By G.M. Filisko.  G.M. Filisko is an attorney and award-winning writer who's owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

http://realtytimes.com/rtpages/20100219_cleanhomes.htm

• Dry
• Clean
• Well Ventilated
• Combustion Product Free
• Pest Free
• Toxic Chemical Free
• Comfortable

How you live in your home affects each of the seven steps. Water, clutter and dust provide the conditions and ingredients for mold, insects, mice, rats, roaches and dust mites to make their home in your home. Pests inside your home can lead to allergic reactions; pests lead to the use of pesticides that are not good for people to breathe or ingest (eat). Food and water are an invitation for pests to live in your home. If you keep your home clean and dry you will have a home that is healthy and comfortable for you at the same time that it is not a friendly place for these unwelcome pests.

Ventilation removes stale air from your home and brings fresh air inside. This helps to remove some of the pollution that builds up inside your home. But you have to use the fans or ventilation system to keep your home from becoming stale and unhealthy. If ventilation is inadequate, moisture can build up increasing the humidity in your home. High humidity levels make the airfeel sticky and uncomfortable for most people. Mold and dust mites, however, love high humidity. So comfort, no pests and good indoor air quality go hand in hand.

Burning gas or oil produces combustion products such as carbon monoxide — these should never be present in a healthy home. Smoking is a form of combustion; so don’t let anyone smoke inside your home. Keep your home a healthy home.

What people bring into homes and store inside can often lead to problems. The containers that store toxic chemical cleaning compounds, solvents and oil-based paints slowly release the chemicals into the indoor air. Don’t bring these products into your home. When in doubt, get them out by disposing of them properly.

Living in Your Healthy Home

Getting Started

The first thing is to do is to learn about your home.  Familiarize yourself with the operation of all appliances and equipment.  Learn where the main water and gas shut off valves are.  Learn where the electrical panel is and which switch turns off the electrical power.  Learn how to turn off the water to the clothes washer and to the hot water tank in case a hose bursts or they begin to leak.

Probably the most important thing to learn about your home is how to report problems and to report them right away.  If a leaky pipe leaks a little bit for a long time major problems can occur.


Dry  Too much water in your home is bad.  Too much water results in mold, insects, rodents and mites. Remember that a healthy home is a dry home.

One of the worst things you can do is use a humidifier.  Humidifiers add uncontrolled amounts ofwater to indoor air.  They also have to be cleaned each week.

If you must use a humidifier – don’t – use a vaporizer.

If you must use a vaporizer, if we can’t convince you not to use one, keep the interior relative humidity below 30 percent in the winter.  To monitor humidity you need a measuring device called a hygrometer. Clean the vaporizer regularly if you use it.

If you have bathroom fans use them when you are in the bathroom, especially when showering. They remove water from bathrooms.

If you have a kitchen fan use the fan when you are cooking.  Especially when you are cooking with water.   Boiling water is a humidifier.  And you already know how we feel about humidifiers.

If you have a clothes dryer, make sure it is vented to the outside.  If you vent it inside it is a humidifier…and you already know how we feel…

Plumbing leaks need to be fixed – right away.  Find out how to shut off your water if you have a leak.  Report the leak and insist that it get fixed. Be a pest.  It’s important.

Leaking clothes washers and leaking hot water tanks can be a major headache and need to be fixed right away.

Basements are often damp.  Don’t store anything in a damp basement. Mold will probably grow on what you store in a damp basement. If your basement is damp run a dehumidifier.

Don’t open your basement windows in the summertime, the basement will only get wetter. Outside air in the summertime is humid and the moisture in it will condense on cold basement walls the same way water condenses on the outside of a cold glass.

If you have a dry basement and you want to store stuff in it – don’t.  But if you must, use wire or plastic racks or shelving that elevates things above basement floor slabs and allows lots of air circulation.  Don’t let any paper or cardboard touch the floor or a wall.  Better still, don’t store any paper products or fabrics in your basement. Use sealable plastic containers.

While we are talking about storage, don’t store things in attics either.  This advice only applies to attics without floors. It’s important that attics are well ventilated and storing things in attics interferes with air flow and also probably causes problems with attic insulation.  The only thing that should be in your attic is air – and insulation.

If you have gutters or downspouts, keep them clean.  Don’t disconnect gutters and downspouts. Keeping water away from the walls helps keep your basement dry. 

And finally don’t install wallpaper in your home. Why? Wallpaper keeps walls from drying if they get wet – especially vinyl wallpaper. Trapped moisture allows mold to grow.

Clean  Dust is bad; it contains asthma triggers. Over two thirds of dust in homes originates outdoors, and is tracked in on feet.  House dust is known to contain many hazardous materials.  Stop the dust at the door.  Take off you shoes and provide a space for your shoes at the door.  Provide a welcome mat and keep it clean.  Vacuum and filter the rest away.  And make the home easy to clean.  Don’t clutter your home.

A good trick is to have a pair of inside shoes and a pair of outside shoes.

Use a vacuum regularly.  If you can afford one, get a vacuum with high efficiency filtration and an embedded dirt detector (it indicates when the floor is clean). Check the bag regularly. Replace the bag when necessary.

When you use cleaners use mild cleaners and soaps.  Don’t turn the area under your sink into a toxic chemical dump by storing powerful chemical cleaners. Don’t store pesticides there.

Change your furnace filter regularly – or insist that it be changed.  Filters should be rated at MERV 6-8 (35 percent or better dust spot efficiency).

Don’t use or purchase an ozone air cleaner.  Ozone is a respiratory irritant and can trigger asthma attacks.  And while we are at it, don’t use air fresheners or room air deodorants.  They are indoor air pollutants that mask problems and deaden the senses if they are not causing respiratory problems on their own.

Well Ventilated  Dilution is the solution to indoor pollution that cannot otherwise be prevented or removed.

Almost everything in your home gives off chemicals or moisture.  If there are too many pollutants in the air that you breathe you have a problem.  Since people love their possessions and we can’t get rid of their possessions or find possessions that don’t give off pollutants we have to ventilate the pollutants in the indoor air out.

Oh by the way, people also give off stuff – moisture, odors, carbon dioxide….we’ll stop the list here because it can get pretty ugly.  So even in a house without stuff, the people in the house need ventilation air to dilute the “bio-effluent” they themselves generate.  People also cook – well some of them do – and generate more stuff.  You get the picture.

Use your bathroom fans, when you are in the bathroom and after showering.

Use your kitchen fan when cooking.

Open your windows when it is not too cold (or when it is not too hot or humid if you have air conditioning).

When you are cleaning, especially with powerful cleaning agents (the stuff we told you not to store under your sink), open your windows and turn on an exhaust fan.

If you can, ventilate your dry cleaning before you hang it in your closet.  Air it out outside if you can.  Or on a porch, or in your garage. Or in a room with an open window.  Better still buy clothes that don’t need to be dry cleaned.  Some “dry clean only” clothes can be washed – but be careful.

Combustion Free  When something is burned it produces products of combustion, particularly carbon monoxide and particles that are unhealthy.  Products of combustion should never be found in the indoor air of a healthy home.

Don’t smoke in a healthy home.

Don’t burn candles in a healthy home – at least not the scented ones.  The aromatic candles generate soot and other bad stuff (chemicals that are not good to breathe).

When you cook use the kitchen fan.

Don’t ever use a gas oven or the stove top to heat your home.

Don’t purchase or use ventless kerosene or gas space heaters.

If you have a garage don’t operate your car in the garage (except to get it in or out).  Certainly don’t warm it up in the garage.  And never run your car in the garage with the door to the house open.


Pest Free  Infestations of cockroaches, mice and rats can all cause allergic reactions.  Even after the pests are gone, their skin, hair and feces can remain and cause allergies.

Making a home pest resistant produces a healthier home two ways:  it reduces exposure to allergens and asthma triggers released by the pests and it can reduce the amount of pesticides used.

Keep them out. Keep bushes and trees at least 3 feet from homes.  Bushes and trees near a home provide food, a living place and sheltered passage for pests such as rats, mice, birds, roaches and ants.  Don’t store trash and clutter near buildings.

Block pest entries.  Seal utility openings and joints between materials.  Use corrosion-proof materials such as copper or stainless steel mesh.  Rodents can chew through many materials.

Reduce food and water availability.  Keep kitchen waste in covered containers.  Don’t leave food out.  Clean your dishes.  Don’t pour grease down drains.

Don’t use moth balls. They release chemicals that are not good for people. If a pesticide is necessary get a professional who specializes in integrated pest management to apply it.  Don’t use wall injected pesticides – except boric acid.

In the Northeast, dust mites do not generally colonize buildings because buildings are too dry for much of the year. They colonize bedding, stuffed animals and favorite chairs because we humidify these things with our bodies. Control is by washing these items in hot water (greater than 130° Fahrenheit), which kills the mites and washes away allergens.


Toxic Chemical Free  Toxic cleaning compounds, pesticides, oil- or alkyd-based paints and solvents can contaminate the air. Many of the containers these products are stored in slowly release the chemicals into the indoor air. These products should not be stored inside the house. When in doubt, get them out and dispose of them properly.

Finally, don’t do unusual things indoors like welding or stripping paint from furniture.

Comfortable  If you are uncomfortably dry in the winter and you decide to use a humidifier, do not over humidify your home.  Limit interior relative humidities to less than 30 percent in the winter. To measure the relative humidity you need a measuring device called a hygrometer.

In the winter keep you blinds open to capture solar gain.

In the summer keep your blinds drawn to reject solar gain.  This is particularly important for west facing windows.

If you have removable storm windows, remember to install them for the winter.

If you have air conditioning do not over-cool your home.  Temperatures below 75 degrees Fahrenheit can cause problems with summer sweating within walls (where you can’t see it) and the condensation can promote mold growth.

If you have questions about the home buying process, I am here to help.  I have helped over 120 families in the last six years with their real estate transactions. I offer knowledgeable advice, friendly and professional service, and a caring attitude. There is no cost or obligation for answering your questions, and there is never any sales pressure. 

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates go up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.