College students buying up foreclosures

More and more college students are going beyond renting and are actually buying their own houses.

Of the seven homes he sold last month, five were sold to college students or recent college graduates, Edina realtor Jesse Godzala said.

“College students are just eating up the foreclosures,” Godzala said. “My phone has been ringing off the hook since the $8,000 tax credit came up.”

A provision was included in the stimulus plan President Obama passed that lets firsttime homebuyers be eligible for a tax credit of 10 percent of the home’s purchase price up to $8,000.

Between the tax credit and the extremely low prices of foreclosed homes, college students are reaping the benefits of buying homes, Godzala said.

“It’s amazing,” Godzala said. “There are first time homebuyers that normally, it would take five to 10 years to get in a home, and in some of these cases, they’re getting these homes for 2 percent down or 3 percent down.”

Prices on many of these houses are so low, that students are buying them and paying their mortgages for $300 per month, the same price they would be paying for rent.

“What we could get with our house payment and mortgage payment would be the same as renting an apartment,” said Nicholas Honer, a student who is buying a foreclosure with his fiancé.

Some foreclosed houses are selling for anywhere from $20,000 to upwards of $70,000 less than their appraised values. Students are buying these homes hoping to sell them for twice what they paid when the market recovers in three to five years.

Godzala said foreclosures can cost anywhere from $32,000 to $180,000, but most clients are buying those in the $120,000 to $130,000 range.

“If you can live there for three to five years, those were homes that were going for $180,000 or $190,000 before the market crashed,” Godzala said. “You throw a few renters in there, you’re talking about a low payment, low interest, and someone else is helping you pay your mortgage. You’re going to be reaping the rewards and you’re going to have a heck of a down payment for your next home.”

Misconceptions

Godzala said many students have misconceptions about buying homes. He said one student looking for a house asked him if first time homebuyers could buy foreclosures because her landlord told her they couldn’t. Another student said her landlord told her it takes two to three years to close on a foreclosed home. Both of these ideas are false, Godzala said.

“Yes, first time homebuyers can absolutely buy foreclosures,” Godzala said.

Students are often concerned about financing, but Godzala said there are plenty of lenders who will finance foreclosures.

Another question students often ask is if there are any good foreclosures. “I’d say you have to look at five to 10 until you find that one gem,” Godzala said. “A lot of them are really beat up. A lot of them have water damage, they may have cosmetic problems (paint, bad carpet).”  

Be cautious

“When someone goes into foreclosure there’s a history of them not being very nice to their property if they know it’s going back to the bank,” Godzala said.

A lot of the time, foreclosures won’t have appliances because the people moving out will have removed and sold them, Godzala said.  

Another important thing to look for is to see if the house has been winterized, or protected against the elements.

To make sure a home is in proper condition, buyers can get house inspections before they buy, which cost about $300 and take about four hours to complete.

“I would say anybody these days that buys a foreclosed home without an inspection is looking for trouble because there’s little things that I’ve found where people have sabotaged their house,” said home inspector Wayne Sieling. “I’ve seen headers cut out from beneath steps and I’ve seen rafters cut in attics, waterlines that have been cut.”

Homebuyers hire Sieling to find even the most minute problems with the houses they are interested in buying. After inspecting the house, he recommends whether to hire a plumber or electrician for the buyers, and lets them know if there are any major problems with the house.

“It’s amazing what people will do. But when they lose their house, they’re angry,” Sieling said. “It ain’t the bank’s fault. Maybe they lost their job and they’re angry that they’re losing their house and they blame it on the bank, so they do little things to say ‘Well, I’ll fix that.’ They do little sabotages in the house. And there’s a lot of that that’s done on these foreclosed homes.”

Sieling said he inspected a house where the people who moved out spread used motor oil throughout the house on all the carpets and hard wood floors when they left, leaving the house wrecked.

Sieling said he’s also seen deadly hazards in homes and has saved people from buying a $200,000 mistake. A recent inspection revealed massive mold damage in an attic that the buyers would have been unaware of.

“If they would have bought that house, I would say within a year with a nice snow load, that whole roof could have come down,” Sieling said. “If someone was in the house, it could have killed them.”

Godzala emphasized that there are good foreclosures out there. “You can come across that foreclosure that the people just moved out,” he said. “Every once in a while, you can find that gem.”

Honer, the student homebuyer, said students should budget accordingly.

“Know what you can afford, not only for your house payment, but for repairs and electrical and heating and gas and lawnmower and all that extra stuff,” Honer said. “Also, with buying a foreclosure, make sure you get a good realtor and make sure that they’re gonna take care of you.”

Godzala said the foreclosure mania might last for a while – at least three to five years.

“It’s huge,” Godzala said. “It’s going to be around for a while until these properties get gobbled up.”