For investors who want to make a great ROI or home buyers who want to get a house for the lowest price, buying a foreclosed home can be a good decision. It is one of the best ways to secure a winning deal on a property and net a fantastic profit when it comes time to sell. Although foreclosed homes often offer greater profit opportunities and bargains than traditional real estate does, investing in them also carries a larger risk: buyers have fewer chances to inspect the home, meaning earnings and savings can get eaten up by the cost of repairs.
Compared to buying traditional real estate, purchasing foreclosed homes is not only riskier, but it involves more paperwork and regulations, making these purchases difficult to navigate for those who are new to real estate. Because of the increased complexity of these transactions, working with an experienced real estate agent can be a great help to first-time buyers and new investors. Be sure to use our form to schedule a free no-obligation consultation with a qualified real estate agent if you’re interested in diving into the foreclosed home market.
If you’re considering buying a foreclosed home in North Carolina, there are a few things you must know before you start house hunting: what a foreclosure is, what the stages of the process are, and what you’ll need to go through with the purchase. After reading this article, you should have a good grasp of the basics of foreclosures and how these unique properties can fit into your future or your real estate investment strategy.
What Is a Foreclosure?
When you take out a mortgage to buy a house, you use the home you’re purchasing as collateral for the loan. This means that if you’re unable to pay your mortgage, the lender can repossess the property. The process of seizing the home is referred to as foreclosure.
Like most real estate laws, foreclosure laws can be different depending on what state the repossession takes place in. In North Carolina, most foreclosures are non-judicial, meaning that they are settled outside of court. However, unlike the law in many other states, there must be a hearing with a court clerk before a sale goes through.
Stages of Foreclosure
There are three main stages of the foreclosure process. Let’s take a quick look at them:
Before a formal repossession of the home has taken place, the owner of a house that’s going to be foreclosed on will be notified that they need to make their payments or their house will be seized. This provides the homeowner with time to either try to get their finances in order or make a sale.
If they cannot afford the payments, however, then they will need to sell the house. Investors and buyers can approach homeowners during this phase and try to work out a deal with them.
While it may seem cruel to buy a cherished home from someone who doesn’t want to give it up, you can help people in these situations out by doing so. By purchasing their home, you’ll save them from the damage their credit score would take if the foreclosure were to go through. You’ll also get a great deal on the property, so it’s a win-win situation for both parties, despite the uncomfortable circumstances.
If a homeowner remains unable to pay their debts, the house will be seized and auctioned off. Although you can get amazing deals at these auctions, you won’t be able to inspect the home yourself. This means that if the house you buy turns out to be in bad shape, you can end up spending far more than you budgeted on repairs.
Bank-owned or Real Estate Owned Home
Houses that don’t get sold during either pre-foreclosure or the auction are repossessed by the lender. The lending company will then fix up the home and put it on the market like a traditional home. Because of the work involved in making necessary repairs, houses are priced close to fair market value, and it’s much harder to find a deal in this stage of the foreclosure process.
Pros and Cons of Buying a Foreclosed Home
Foreclosed homes are sold far under the market value as their owners and lenders are trying to get them off their hands as quickly as possible. This means that investors stand to make a huge profit if everything goes well.
However, buying a home that’s been foreclosed upon can also carry a huge risk: since buyers in an auction can’t see the property firsthand, they could unknowingly purchase a house that needs repairs and renovations that will cost more than their projected profits. This risk can be mitigated by buying a home during pre-foreclosure or once the home has made it past auction.
How to Buy a Foreclosed Home
To buy a foreclosed home, you will need two things: a mortgage pre-approval and a great real estate agent. You can get pre-approved for a mortgage by finding a lender and providing them with the financial information they request. If you are approved, they will set a maximum loan amount they will lend you.
Next, you should find a real estate agent who will help you navigate the complex process of purchasing a foreclosed home. Clever Partner Agents are top-notch real estate agents from major brands like Century 21, Keller Williams, and RE/MAX. Our Partner Agents can help you get a great deal on a new home or investment property, and you’ll even be eligible for a $1,000 Home Buyer Rebate to help cover closing costs.
To schedule a free, no-obligation consultation with one of our experienced real estate agents, fill out our form and we’ll be in touch with you shortly.