$15,000 for Foreclosed Homes

The Indiana Housing and Community Development Authority (IHCDA) announced that Hoosiers may be eligible for up to $25,000 in zero-interest, non-amortizing loans for Hoosiers to purchase foreclosed homes. Hoosiers who buy foreclosed homes to use as their primary residence can qualify for a $15,000 loan from IHCDA’s Market Stabilization Fund. The Federal Home Loan Bank of Indianapolis has committed to supply matching loans of up to $10,000.“When Hoosiers open the door to their new home, they open several windows of opportunity,” Lt. Governor Skillman said. “This is a unique use of federal dollars that will encourage homeownership while revitalizing communities.”The money comes from HUD’s Neighborhood Stabilization Program (NSP), which allocated $84 million to IHCDA. The state will use $33 million of that allocation for the Market Stabilization Fund. Assistance from this fund will be made available to income-qualified individuals and families who choose to purchase foreclosed homes in areas of the state in greatest need of assistance.Areas of greatest need are identified, with the assistance of the Indiana University Center for Urban Policy and the Environment, using a combination of HUD-provided data and proprietary data. Indiana is the only state using NSP money in a statewide program to help people buy foreclosed homes.

How the Market Stabilization Program (MSP) Works:
IHCDA will offer up to $15,000 (not to exceed 20% of purchase price) to assist home buyers with the acquisition and/or rehabilitation of a foreclosed residential property located within an area of greatest need.

• These funds may be used in conjunction with the IHCDA First Home product, FHA, VA, USDA, or prime fixed rate product. No adjustable rate or subprime mortgage products will be allowed for the purchase of these homes.
  
• Home buyers may use these funds for closing costs and down payment assistance related to the purchase of a foreclosed home or residential property that will be used as the primary residence.
  To be eligible for rehab funds a residential structure must not meet local building code and therefore is unable to be purchased in its present condition.
• 
  Buyers may use both acquisition and rehabilitation assistance in the purchase of a home, but the combined assistance may not exceed $15,000.
  

These funds will be in the form of a zero-interest, non-amortizing, second mortgage loan. These funds do not have to be repaid as long as home buyers use the home as a principal residence for at least ten years. If the home buyer sells the home within the first five years, the subsidy is repayable to IHCDA on a shared net proceeds basis. If the home buyer refinances within the first five years, the entire subsidy is repayable to IHCDA. After year 5 and through year 10, the home buyer will retain 20% in equity of the award amount per year.

• This funding will be available to home buyers that are at or below 120% of area median income and who intend to occupy the home themselves. To determine income qualification, compare household income and family size to the income guidelines listed below.
  To use the current income limits for MSP as a second mortgage only: MSP Stand-Alone Limits.
  
• To use the current income limits for MSP in conjunction with a Municipal Revenue Bond (MRB) or Mortgage Credit Certificate (MCC): MSP Income Limits with Bond or MCC.
  Home buyers will be required to participate in 8 hours of pre-purchase education provided by an IHCDA certified counselor.
  IHCDA will be coordinating with lenders/servicers, Fannie Mae, Freddie Mac and HUD to list foreclosed properties on a centralized Web site. Visit http://www.indianahousingnow.org/ and click on the Market Stabilization Program link to determine if a foreclosed property is in an eligible neighborhood. Lenders will be required to sell the properties listed on the site at a discount that meets or exceeds NSP guidelines. Site will be live by the end of April.

MSP Brochure and Detailed Information:
The following link is a consumer friendly brochure on the MSP program: Consumer Brochure.
To view a PowerPoint with detailed MSP information click here: NSP PowerPoint.
If you would like more information on all of IHCDA’s programs, please visit their Web site at www.in.gov/ihcda.

Federal Home Loan Bank of Indianapolis's Program:
The Federal Home Loan Bank of Indianapolis’s (FHLBI) Neighborhood Stabilization Assistance (NSA) program is offering matching loans of up to $10,000. The main qualification for the NSA program is that the home buyer must have already secured IHCDA funds. Once IHCDA funding is secured, proceed by contacting an FHLBI member financial institution. Find a list of member institutions, program guidelines and other information by clicking here.

The Reality And The Myth

For the purposes of this discussion a bank owned home is one that has been foreclosed on and are also called, foreclosed home, repo home,lender owned,HUD home, VA home.
With the increase in the number of bank owned homes available the rumors seem to fly such as:

• It's bank owned it must be a bargain
• The bank that owns the home will loan me the money
• The bank will will never do any repairs
• All bank owned homes are in poor condition
• All bank owned homes are in bad neighborhoods
• I can't get an FHA loan on a bank owned home

First, not all bank owned homes are a bargain, some are grossly overpriced. Some but not all banks pick a number they feel they must get for the house and stick to it, no matter what the market has to say. I can show you a couple of properties in Indianapolis that have been on the market for more than three years and the price is still the same. For whatever reason the bank has decided that they need a certain amount and don't seem to understand that the public could care less what they need. So rule number one in buying a bank owned home : Don't count on common sense from the bank.

The bank that owns the home will loan me the money. My experience has been that it really happens, honestly I don't know why but a couple of banks I have worked with have just said it gets complicated. I purchased a bank owned home years ago and the bank did loan the money to me but I am not sure why. I believe it was because they would not be selling the loan but I'm not really sure.

The bank will never do any repairs. Most of the time this is true, however there are exceptions to the rule. I was selling a HUD owned home years ago (HUD owned homes are homes that had an FHA loan on them) and the person buying the home was getting an FHA loan, the home inspection revealed that the water heater leaked, I let the management company for HUD know this and was told that "we don't do repairs", when the were informed that the buyer was getting an FHA loan and that the loan could not be approved with a defective water heater, needless to say they fixed the water heater. Right now with HUD homes first time buyers can finance repair into the loan with the 203k mortgage, more about that later. Keep in mind though, when you purchase a bank owned home you will be required to sign a document that states you are purchasing the home as is, the sale is still subject to a home inspection that is satisfactory to you.

Bank owned homes are always in bad condition. Often times yes, many time not really. I have been in some bank owned homes that are move in ready, others that nearly everything except the drywall has been stolen and that has holes in it.

All bank owned homes are in bad neighborhoods. You will need to define what a bad neighborhood is for yourself. I looked up FannieMae owned homes today (more about Fannie Mae tomorrow or go the my first time buyer blog at http://www.indyfirsttimehomebuyer.blogspot.com ) and just in Indianapolis there were 159+ house available prices range from $6,500.00 (most likely not habitable) to $259,000, that appears to be in good shape.

I can't get an FHA loan on a bank owned home. This couldn't be further from the truth, when you buy a HUD home you most likely could get an FHA loan, low 3.5%down payment or $100 down for first time homebuyers. I have sold quite a few bank owned homes with an FHA loan, just look the house over cafefully because with FHA loans the house must be in reasonable condition.

Some basic rules:

1. Don't count on the bank using logic or common sense. I had one bank that walked away from an offer because the new lender required the roof be replaced, the buyer was willing to pay to have the roof done, lender said no to the buyer and would not replace the roof themselves. A month went by after the buyer found another home, the lender phoned and told me to get 2 estimates for the roof replaced the roof for $5000, then sold the house for less than the original offer, and we wonder why some banks are in trouble.
2. Expect the unexpected and delays. Nearly anything can and may happen, tax liens appear that take time to get rid of, attorneys did not clear all liens for the foreclosure, bank only placed mortgage on 1 lot when there are 2 lots and the house sits on both, this list could go on and on and on and on.
3. GET PRE APPROVED. There is no sense spending your time looking at bank owned homes until you have a pre approval letter or evidence of cash before submitting an offer, the bank will not even look at an offer without the pre approval letter.
4. Just imagine you are in the Army and be prepared to hurry up and wait.
5. Be patient when looking for the right bank owned home for your purposes.

I you you would like to get a list of bank owned home in Indianapolis and surrounding areas sign up at www.indianapolisbankownedhomes.com