How to Buy a Foreclosed Home
Foreclosed home sales happen when borrowers can no longer make mortgage payments and the properties get turned over to the lenders. Lenders, in turn, sell the homes in an attempt to recover some of the losses. A foreclosed home is often sold for less than market value and that’s why foreclosed homes are so attractive to bargain hunting home buyers.
A potential downside to a foreclosed home is its condition. Did the previous owners take good care of the property or did they let it fall into disarray? How much time and money would it take to get the home back in shape? Not all foreclosed homes sell for a low price, many sell close to the home’s appraised value. Be aware of this as you are shopping for a foreclosed home. Where can you find foreclosed homes? You can find foreclosures at auctions, the traditional way of finding foreclosed homes, online sites such as Zillow and from real estate agents. You can pay cash or finance a foreclosed home. You pay cash at the auction and you can finance bank-owned foreclosures by getting pre-approved from a mortgage lender. Be aware that some banks may not finance foreclosures or they will require big down payments. So it may take some shopping around to find a good deal.
The Risk of Buying a Foreclosed Home
With a number of foreclosed homes, buyers are not able to inspect the property before they bid. Buying a property sight unseen offers plenty of risks. The price of the house may be low but you won’t know the reason why until after you make your bid.
You typically have to buy a foreclosed home “as is.” So any repairs that are needed are passed on to you, the new owner. The old owners may have stripped the home of valuable appliances and they may have taken out their frustrations on the house when they found out they would be losing their home. All the home repairs are up to you, the new owners.
Get an Inspection
Go in with your eyes wide open and hire an inspector to check out a foreclosed property. In most cases, the bank will disclose the details of any home defects but the bank may not know everything. And that is where hiring an inspector comes in. You’ll get the information you need to make a bid on a foreclosed home.
Check Out Public Records
A property record search can tell you information about the home’s sales, tax liens, changes to the home’s square footage and additions to the property. Check with your county tax office about a property record search on the foreclosed home you are interested in.
Visit the Foreclosed Property
Drive by the house and take a look at how the property looks from the street. Is the yard maintained? Does the house need painting? How does the roof look? Does it look like the exterior of the home was well-maintained by the previous owner? Take a look at the neighborhood. Is it a neighborhood you would like to live in? Is it a quiet street? These are all things to consider when buying a foreclosed home.
Hire a Real Estate Agent
Hiring a real estate agent who specializes in foreclosed properties is a good way to smooth the buying process. He or she will be able to answer your questions as you search for a foreclosure home. And they may be able to direct you to foreclosed homes you weren’t aware were on the market.
Types of Foreclosed Home Sales
Here are four types of foreclosed home sales. Short sale. A pre-foreclosure, also known as a short sale, happens when the owner still owns the home and he or she knows foreclosure is looming. The owner is trying to sell the home before it ends up in foreclosure. In a short sale, the owner gets permission from the lender to sell the home for less than what they own on their mortgage. Let’s say they owe $200,000 on their home. In a short sale, they may sell it for $180,000.Compare Home Insurance Quotes
Auction. At a real estate auction, third-party trustees run a sale of foreclosed homes for banks and lenders. These banks and lenders have taken ownership of the homes after the owners of the homes defaulted on their mortgages. Auctions typically require buyers to have cash on hand. So you’ll need a large amount of cash if you wish to buy a foreclosed home at a real estate auction.
Buy from the Bank. Another option is buying a foreclosed home from the bank or lender. The bank or lender will hire a local real estate agent to place the foreclosed home on the market.
Government-Owned Property. You may be interested in buying government-owned foreclosures. These properties are similar to the ones owned by banks and lenders. The government agency took ownership of the home after the owner defaulted on their mortgage. Government-owned foreclosures are mostly sold “as is” so any repairs are the responsibility of the new owner.
Get Pre-Approved for a Mortgage
Don’t have the cash to head to a real estate auction? Getting pre-approved for a mortgage is a smart move to make when shopping for a foreclosed home. To be pre-approved for a mortgage, a lender will check your credit and verify your annual income and your debts. If you’ve got too much debt already, you may not be pre-approved for a mortgage. But if your debts are low and you have a strong and steady income, there’s a good chance you’ll be approved. Once you’ve been approved, the lender will then determine just much mortgage to approve you for. Is it $200,000? Is it $250,000? It makes a difference to your home shopping.
Once you get a pre-approval letter from a lender, you’ll know precisely how much you can spend on a foreclosed home. Sellers prefer working with buyers who already qualify for a mortgage. So getting pre-approved for a mortgage definitely has its advantages. With pre-approved financing, you will be able to act quickly when you find a foreclosed home that you like. And this can be a real advantage in a competitive real estate market.
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