Is buying a foreclosed home on your wish list? You’re sure to have a lot of questions about them, and rightly so! Buying a foreclosed home isn’t as cut and dry as a traditional home sale. You asked, we listened! Here are the answers your top foreclosed home questions.
What exactly is a foreclosed home?
A foreclosure property is a house that was once owned by someone who stopped paying their mortgage. When this happens, the bank or mortgage lender has the right to take the property away and ultimately resell it. They do this to try to make back the money they lost.
Although there are foreclosed properties all over the country, there are some areas that are bigger foreclosure markets than others. These are areas where people may have overspent on their homes, or where there was a big change resulting in lost jobs.
Why buy a foreclosed house?
Many people think that foreclosed properties can be great deals because it is almost like you are getting a discount on a house. They are often sold below their market value because the bank just wants to get back the value of the loan and move on.
The one catch is that there are sometimes additional fees that you will have to pay when you buy a foreclosed home. For example, in 2012, buyers of foreclosed homes in the states with the lowest fees paid $3,000 for a $200,000 home.
Pros of Buying a Foreclosure
One of the major pros of buying a foreclosed home is that even with any additional fees you can often get the house for well below the market value. Depending on the quality and condition of the foreclosed property, they can almost always be considered good deals in real estate. Foreclosures often make it possible for people to afford a bigger home or a home in a nicer neighborhood than if they were buying on the regular market.
Cons of Buying a Foreclosure
The process of buying a foreclosure can be long and uncertain. Because there are so many parties involved in the process, the foreclosure process can sometimes take years. There are many steps in the process and it includes the bank, the owners, and sometimes even the court. Buying a foreclosure is not always a fast process, so you should be prepared to be patient.
The quality and condition of a foreclosed home is a bit of a wild card. Many times, the owner is distraught over losing their home and may let things fall into disrepair or maybe even intentionally damage things. Unlike a traditional purchase where you can negotiate with the seller to fix things, a foreclosed property is bought “as-is”. This means you are responsible for fixing everything.
Many foreclosed homes have outstanding tax payments or liens. If you purchase the home, you will be responsible to pay these. This may involve dealing with the IRS or city and you may end up using the money you had set aside for repairs to settle these outstanding debts.
Common Mistakes When Buying a Foreclosure
There are some common mistakes to avoid when buying a foreclosure.
- Don’t do it alone. Make sure you have a team like you would for a traditional home purchase. This includes an agent, a lender, a real estate attorney, and an inspector. Having a strong team you can trust makes the process less stressful.
- Don’t make a decision without information. In other words, do your research. Look at other properties in the area to determine the value of the home you are considering. Also discuss the foreclosure laws in your state with your attorney.
- Don’t skip the inspection. Not only should you have an inspection, you should actually attend the inspection! This will help you to know what exactly needs to be done to the home and anticipate potential repair costs.
With the right planning, you can easily avoid these mistakes and make the process as smooth as possible.
What are the steps to buying a foreclosure?
Find a foreclosure.
These homes are sold many different ways, including auction, or standard sale by a bank. The easiest way to begin this search for foreclosure listings on the Internet.
Find a real estate agent.
While searching for homes, you should also be searching for a real estate agent. Most banks have relationships with specific agents and this can make finding one easier.
Find a mortgage broker.
Just like buying a traditional home, you will also need to find a mortgage lender and get pre-approval. Working with a mortgage lender can help you to understand how much you can afford to spend on a house. They can also explain current mortgage rates and the process for getting a loan for a foreclosed property.
Some people think that because a bank is selling the home, they will also give you the mortgage to buy it. That is most often not the case. The bank selling the home and you purchasing the home are two different transactions. This is why you need to find your own bank or lender before beginning the search for a property.
Go to closing.
Once you have these three professionals on your team, they’ll help you walk through the closing costs, inspection, and lending portion of the foreclosing process.
What things should I be considering?
Just like with buying a regular home, there are things you should be considering when buying a foreclosure. You will want to make sure you can have the home looked at by a licensed home inspector. This person can give you an honest third-party assessment of what is wrong with the home and what needs to be repaired.
If you are planning to purchase the home to live in, you will want to make sure you learn about the neighborhood and surrounding areas. Also, if you have kids, you will want to check out the school systems. If you work, you will want to see what your commute will be like. Overall, you’ll want to make sure it’s a place you want to live.
You’ll also want to think about the long-term value of a home. Prices in any market fluctuate, so you’ll want to be prepared for that and make sure that the cost of purchasing the home will be worth it. If you are considering reselling, you will want to make sure that whoever buys the property in the future will be willing to pay a price high enough for you to profit.
Is buying a foreclosed property worth it?
Buying a traditional home comes with many different things to consider, such as the location, fit for your needs, repairs, etc. A foreclosure is no different. You’ll want to do your research, assemble a team you trust, and run the numbers. Although this process can be more complex than buying a traditional home, with the right mindset, it can be a successful purchase that helps you to buy the home of your dreams.