How to Buy a Real Estate Foreclosure Property
What to Know About Buying a Foreclosure
A foreclosed home is a house now belonging to the bank. Buying a foreclosed home is not quite as easy as it sounds. What has happened is the owner stopped paying their mortgage. More than likely, the owner was unable to keep paying for the home.
The bank holding the mortgage has repossessed the house and now intends to sell it to recoup some or all of their outstanding money. Once the bank moves toward foreclosing on the house, the owner is forced, by law, to move out.
Lenders are not in the business of owning real estate, so they will move quickly towards selling the property. Doing so provides you with the opportunity of buying a foreclosed home. Before doing so, however, you will want to follow some expert advice. There is a ton you should know about purchasing a foreclosure. Maximum Real Estate Exposure has some excellent foreclosure purchasing tips but we will also cover a few of them here.
Let's take a look at some of the more essential considerations with purchasing a foreclosed home.
- As with most tricky situations, you need an expert, so find a real estate agent specializing in foreclosures, as you can't do this without guidance and advice.
- Go to your preferred lender and get a mortgage pre-approval in writing. Don't forget to shop for the best terms, though.
- Don't go with the bank's real estate agent as they work for them, not you.
- When identifying a suitable foreclosure home, make sure you write an appropriate offer. Usually, foreclosures are priced competitively.
- Make sure you get a home inspection when purchasing a foreclosure. Quite often, there are problems with foreclosures due to the previous owner being in a financial bind.
- Ask your agent to guide you through anything specific you should know about this foreclosure.
- Keep in mind the bank might not accept an offer if the real estate market favors sellers.
- If foreclosures are selling quickly, you may have to go higher than the asking price as there are bound to be multiple bidders.
- See more helpful tips when buying a foreclosure at Point2 Homes.
What to Look For When Buying a Foreclosed Home
Like all houses, the position and location are important, and if it is in a sought-after place, others will be trying to purchase it as well. When buying a foreclosed home, the bank or seller can't guarantee the condition that the property is in, and if there are problems, you will have to be ready to fix them yourself.
Banks sell all of their properties in as-is condition.
It is a good idea to go ahead with a home inspection to make a list of what needs to be done and to price any necessary repairs. If the property is potentially rewarding in every other way, this won't bother you, as most repairs can be done later on.
You will probably have bought below market value, but repairs can add up, so make sure that there is nothing structural to be done.
The house may have been empty for some time and could be overrun with termites or other rodents. So, get a pest inspector in as well to check the walls and floors.
While you are there, check for mold and mildew, these can usually be overcome but are expensive to remove. When buying a foreclosed home, waiving a home inspection is never a prudent idea.
How to Buy a Foreclosure Before It Happens
If you happen to know that the property is about to be foreclosed on, the owners will be motivated to sell before this happens. These properties are what's referred to as short sales. A short sale could offer you the opportunity to purchase a home under market value. This is a good way for first time home buyers to get into the market at a potentially lower price.
However, keep in mind that, unlike the name suggests, "short sales" take a long time to complete. Lenders often sit of them for months before the file moves through an endless process. It would be best if you were prepared to potentially wait six months or more to get the home you want.
Making an Offer on a Foreclosed Home
If you feel that the Bank or Lender is asking too much for the property, get your real estate agent to run a comparative market analysis. Doing so will show recent sales prices of homes in the area. Never assume that just because something is a foreclosure means it is a great buy. Some foreclosures need price reductions in order to sell.
Once you have the analysis and do the breakdown of similar properties, you may find that you can offer slightly less and have it accepted. Make sure you are prepared to move quickly with your financing and, ultimately, the closing date.
Banks like to see quick turnaround times from buyers as they are holding on to an asset they do not want in their portfolio.
Advantages of Buying a Foreclosed Home
- You will probably get a bargain with most foreclosed properties.
- Doing the repairs yourself will enable you to get a higher valuation quickly. If you are handy, foreclosures can be an ideal purchase.
Disadvantages of Buying a Foreclosed Home
- The repair bills may be more than you thought.
- The transaction could be complex and time-consuming.
- If you buy at auction, you might need to pay cash as there will be competition. Buying at auction is also very risky as you will be taking on any encumbrances with the property. Never buy at a foreclosure auction without doing a title search first.
Closing costs will always be around 3-4% of your purchase price. It is important to have all your finances ready so that no further delays occur.
Some years there are more foreclosures than other years, and they are much more common during a recession. This type of repossession of a house is very frightening for the homeowner, and most would do whatever they could to avoid repossession by the financial institution.
Make a Competitive Offer on a Foreclosure
If you have found your 'dream' foreclosure home and will be attending an auction, you will need to be proactive. Talk to your real estate agent and ask them what they think that the bank would accept?
If within your budget, go ahead and offer in writing, get the agent to help you write the offer properly. Do keep in mind that if it is an attractive property, there will probably be other buyers who feel the same way you do. Competition at an auction could be substantial.
Many real estate investors attending auctions to buy foreclosed homes.
Final Thoughts on Buying a Foreclosure
This is all very exciting, but it has to play out strategically, and if you remain cool, calm, and collected and have all your financials in order, you could just walk away with the bargain of the year. Once you are in your home, you can start planning the next one.
Hopefully, you have found these tips for buying a foreclosure to be helpful.