5 Crucial Tips for Buying a Foreclosed Home
Who doesn’t love a deal?
Wouldn’t you love to get a bargain on the biggest purchase you’ll ever make – a new home?
Well, you can when you buy a foreclosure!
Buying a foreclosure home gives you the opportunity to pay below-market prices for a house you might not otherwise be able to afford.
While there are a few differences to know when buying a foreclosed home versus a conventional one, with a little bit of pre-planning, you can easily manage the process!
Follow these steps, and you’ll soon be on your way to purchasing your first home at a bargain.
1. Know The Different Stages of Foreclosures
So, how do foreclosures work? When a buyer defaults on their mortgage, the bank takes possession of the property and sells it.
In pre-foreclosure, a homeowner sells the property themselves to avoid the foreclosure proceedings.
During a short sale, the lender agrees to accept the property for less than what is owed on it.
When the borrower is unable to catch up on the payments or sell the property in pre-foreclosure, the property is sold at an auction.
REO (Real Estate Owned) homes are properties that do not sell at auction, and the bank now owns it. (Or, in the case of mortgages held by the Federal Housing Administration (FHA) or Veteran’s Affairs (VA), the government repossesses the homes.)
2. Build Your Buying Team
Look for a realtor who knows how to buy foreclosed homes. They often have specialised training and qualifications such as a Certified Distressed Property Expert (CDPE) or the Short Sales and Foreclosure Resource (SFR) certification. They will be able to help you find the right home and prepare the strongest offer.
3. Prepare Your Financing
The process of buying foreclosures happens quickly.
You won’t have time to work out financing after making an offer. So if you’re going to need a mortgage, get a preapproval letter from your lender before you start making offers.
4. Do Your Research Before Buying a Foreclosed Home
How you buy a foreclosure is very similar to how you buy any other home. You want to make a competitive offer based on market conditions in that neighborhood.
Look at both foreclosure property listings and the multiple listing service (MLS) to evaluate the market conditions in the area. Check the recent sales prices of comparable homes and see how quickly they are selling.
5. Get Ready to Clean Up, Literally…
Foreclosed homes are sold “as is”.
Many foreclosed homes are the result of owners who couldn’t afford their mortgage payments anymore and were unlikely to afford upkeep and repairs. Homes may be vandalized either by thieves or the prior owners who were angry at losing their homes.
The banks selling the properties usually don’t maintain the homes while they’re on the market, so it is up to the buyer to pay for repairs and clean up the homes after they buy it.
Buying a foreclosed home could gain you big rewards, but you have to be prepared. Follow these steps above, and you’ll be moving into your dream home in no time!