What is a foreclosure?
For homeowners, foreclosure is a dreaded word. For home buyers, foreclosure means a great opportunity.
What is it exactly?
If someone stops paying on their home loan, the bank has the right to take the property. Homeowners may try to short sell their home at a lower price to avoid having a foreclosure on their record. And even if the bank takes possession, it’ll be wanting to sell it quickly.
This means that the lender is willing to sell foreclosed at a lower price to get them off their hands. As long as they can recoup the amount that was left on the mortgage, they’re happy.
This creates a good opportunity for home buyers or those looking to start investing in real estate to get a good deal on a home. However, you have to be savvy about it or you could end up getting yourself in trouble.
Let’s take a look at how to buy foreclosures in Texas and how Clever can help you snag the right property at the right price.
The Stages of Foreclosure
You can buy foreclosures in one of three stages. The first is pre-foreclosure. At this point, the current owner has received legal notice that the property will be foreclosed on if they don’t bring their payments up to date.
In Texas, the lender can take the property and put it up for auction 60 days later. This doesn’t give the homeowner a lot of time to figure out their options.
If someone swoops in with a high enough offer that the owner can pay off the lender, everybody wins. No foreclosure goes on their record means the owner saves their credit. As a buyer, you can generally get the property cheaper at this stage than at open auction. The bank gets its money. Win-win-win.
If this winning scenario doesn’t happen, the property will normally end up at an auction. Texas law requires that these auctions be announced publicly so you can find out about them in the local newspaper.
To buy a foreclosure at this stage you usually have to have cash in hand. It’s a little riskier because you don’t have time to research the property well and usually can’t do an inspection. You’ll be buying the property “as is” for a price that might be right.
If it doesn’t sell at auction, it becomes a bank-owned or real estate owned (REO) property. Lenders are motivated to sell, but there are a lot of regulations to deal with and paperwork to fill out, so buying a foreclosure at this stage is slow. It also tends to be more expensive than if you got it earlier on.
The pre-foreclosure stage is the one you want to aim for. Because of how fast things have to move, you have to be ready. If you’ll need financing, have your pre-approval letter in hand. The seller isn’t going to take your offer seriously without one.
Remember, this doesn’t guarantee that you’ll get financing. However, it’s a good indication that you will and it helps you know what you can afford to spend. Plus, it can make the process a bit faster once you have a property in your sights and you’re applying for a loan.
Keep an Eye on the Market
Not only do you want to have an idea of what you can afford, but also what houses in the area are worth. This is where working closely with a market expert, aka local real estate agent, comes in very handy.
When you’re looking at a house, your agent will run a comparative market analysis (CMA). The data shows the sale prices of similar houses in the area that have recently sold. You can use this information as a starting point when figuring out what you want to offer.
Include an Inspection Contingency
Because of the speed of the sale, there isn’t a lot of times to make repairs. Foreclosures often require significant repairs as the owner may not have had enough funds to keep up on needed maintenance.
You don’t want to make an offer and then find out that the home needs $50,000 in repairs. Obviously, knowing that beforehand would have changed the amount of your offer.
Thus, it's a good idea to include an inspection contingency in your offer. This means that your offer is contingent upon the inspection finding satisfactorily minor problems. If the problems are severe or expensive, you have the option to lower your offer or revoke it altogether.
A Foreclosure Agent
As you can see, buying a foreclosure can be tricky business. Finding homes in the pre-foreclosure stage isn’t always easy and being ready to act with the speed necessary is challenging.
The best way to increase your chances of success is by working with a real estate agent with experience in buying foreclosures. Their expertise is invaluable when you need to make decisions quickly and don’t have time to research. Plus, they have the resources necessary to find the right properties at the right moment.
Finding the right agent doesn’t have to be hard. Simply connect with us here at Clever. We’ve already vetted real estate agents and only work with agents who have proven that they know their stuff.
On top of that, working with a Clever Partner Agent may make you eligible for a $1,000 Home Buyer Rebate upon closing in qualified states. That will come in handy for making repairs that you will inevitably have to make on a foreclosure.
To learn more, contact us today!