Introduction
Buying a foreclosed home is a great way to get a good deal on your home. However, it’s also a complicated process that can take several months.
What is a foreclosure?
A foreclosed home has been repossessed by the bank or financial institution after the person who bought it did not make the required mortgage payments. Essentially, they’re bank-owned properties or real estate owned (REO properties).
The bank or financial institution may have tried to sell the house, but was unable to do so. This can happen for a number of reasons.
For example, there might be something wrong with the house and potential buyers are afraid of buying a home that needs repairs.
The bank may also decide not to sell your home at auction if they think it will take too long for them to get their money back on their investment in your property (the amount they paid you when they originally gave you financing).
How to find foreclosed homes
You can find listings for foreclosed homes from real estate agents, banks, and online. You can use websites like Zillow and Realtor.com to find foreclosures. In addition to these sites, you can also look for foreclosed properties in the classifieds section of your local newspaper.
Research your local market
Researching the local market is a necessary first step in buying a foreclosed home. You’ll want to know how long the property has been on the market, who has owned it and how much they paid for it. You also need to understand what your competition is like and how many other interested buyers there are.
This type of research is more complicated than it sounds and requires some digging. However, if you take some time upfront to investigate these questions, it will make all the difference in your eventual buying experience.
Pick an auction house
You’ll want to make sure that the auction house you choose is a reputable one. You can do this by researching its reputation in your local community, finding out what other people have to say about it, and learning more about its fees and services. Auction.com has a large selection of foreclosed homes and is very user-friendly.
The best way to judge whether or not an auction house will be a good fit for you is by checking out what they charge for their services, how long they’ve been around, and how many foreclosures they’ve handled.
This information should all be easily accessible on the company’s website or through their marketing materials so that you don’t have to ask them directly (unless of course, someone at the company gives it willingly).
Do your due diligence
Once you have found a property that interests you, it’s important to do your due diligence. You should check the property records and financial statements, as well as the history of the home. Understand what the market value is. Look at things like:
The neighborhood and its residents – Are there schools nearby? Is it safe?
The house itself – How old is it? How big is it? What kind of shape does it seem to be in (and does that matter)? Can you see any repairs or maintenance needed in the future?
Property taxes on record (and why they might be high) – Who pays these taxes if not being paid by an owner or renters paying rent for living there? What about utilities such as power, water service/utility bills (if applicable), Internet/cable TV provider(s), etc.—who pays those bills too if not being paid by an owner or renter(s)?
Pick a neighborhood and home you can afford to improve.
When looking for a home to buy, it’s important that you pick a neighborhood and house that are in good condition. If they aren’t, buying the property will be more expensive and time-consuming than necessary.
For example, if your dream home has been neglected over the years, it might not be worth the cost of renovations and repairs. A better option would be to purchase a foreclosed property that needs only minor improvements before you can move in.
Keep your finances in check.
You should know your credit score. You can get a free copy of your credit report from each of the three main credit bureaus (TransUnion, Equifax, and Experian) by visiting annualcreditreport.com. Your credit score is based on information in your report and how long you have been establishing good payment history with lenders. If you’re applying for a loan or refinancing an existing one, make sure that you keep track of any inquiries made on your behalf so that they don’t lower your score by too much.
Your lender will likely require you to have enough money for a down payment and closing costs before approving the loan—typically about 20% of the purchase price if you are using an FHA-backed mortgage loan program.*
Keep in mind that there may also be some unexpected expenses when buying foreclosures: taxes and insurance payments may not be up-to-date, which means that if you don’t know what those amounts are supposed to be, then you’ll need some extra cash on hand…
Pay attention to your budget.
Before you start shopping, it’s important to make sure that you have enough money to purchase a house. You’ll need to set aside funds for the down payment and closing costs. Additionally, if your credit score isn’t high enough or if there are other issues with your financial history (such as foreclosure or bankruptcy), it may be difficult for you to secure financing at all—or only with very high-interest rates.
You should also consider how much money will be needed for repairs and improvements after buying the home, as well as ongoing maintenance costs such as utilities or property taxes.
Reserve your money for extras.
It is important to have money set aside for any emergencies that may occur before, during, or after your purchase.
This includes repairs, maintenance, and contingency funds. In the case of a foreclosure, you may find some issues with the property that are not disclosed in the listing or even on an inspection report.
This could include anything from foundation issues to pests like termites or mice. It’s best to be prepared for these kinds of things by having a sizable emergency fund in place before you go house hunting so as not to get caught off guard if something does come up during your escrow period (the time between when you buy and when you close escrow).
Another important thing to consider is whether you need additional funds for closing costs at purchase time. If so, how much should they be? Will they exceed what has been budgeted in advance?
Also, think about how much down payment will be required upon purchase; this can vary based on lender requirements and loan type — but keep in mind that most banks will require borrowers to make at least 20% down payment on all types of mortgages except VA loans
How to hire an experienced real estate agent who works with foreclosures?
Here are some tips for hiring a local real estate agent:
1. Look for an experienced professional who has worked with foreclosures before and is familiar with the foreclosure process. If they have been working in this field for a long time, they will likely be able to help you navigate the process more easily and efficiently.
2. Find an agent who will answer your questions honestly and thoroughly so that you feel confident in their knowledge of the process and can trust their opinion on any matter related to buying or selling real estate property.
3. Look for someone who will take the time to get to know you personally so that they can offer advice based on your specific needs; this means asking questions about what kind of home would suit your needs best as well as what’s important for you when it comes down to making decisions about buying or selling properties (such as cost savings).
What is a short sale in real estate?
A short Sale is a process in which a homeowner owes more on their mortgage than the home is worth. The lender agrees to accept less than the full amount owed in order to avoid foreclosure. This is usually because the house has dropped in value and/or there have been extenuating circumstances that make it impossible for the homeowner to pay their mortgage.
A short sale is a way to sell your home when you owe more than it’s worth, and the bank agrees to let you do this. The bank gets more money than it would if it sold the house in foreclosure, and the homeowner gets a lower mortgage payment.
Short sales usually happen because of a job loss or an unexpected medical emergency, but there are other reasons too. For example, if you’re buying a new house, you can ask your lender to do a short sale on the old one so you don’t have two mortgages at once.
Short sales take longer than foreclosures because banks want to make sure they’re getting as much money as possible from the sale of your home.
How to get pre-approved for a foreclosed home?
A mortgage pre-approval is the process of getting your credit checked and approved by a lender before you’re ready to buy a home. It’s a great way to see if you qualify for any mortgages, and it can save you time when it comes time to actually purchase a house.
You can get pre-approved in one of two ways: through a mortgage lender or through an online mortgage broker. If you choose to go with the latter option, be sure that the broker is affiliated with at least one major bank or lender so that they can actually get you pre-approved and qualified for financing.
Getting pre-approved for a foreclosed home involves some of the same steps as getting pre-approved for any other type of property transaction; however, there are certain things that will make this process easier than others.
For example, if you have an excellent credit score or have significant savings in your bank account, then lenders will likely be more willing to work with you on funding your purchase of a foreclosed property than they would someone who has no money saved up at all (or even worse—someone who has negative equity in their own home!).
Find out what type of loan works best for your situation and budget, whether it’s an FHA loan or something else entirely (like VA mortgages).
Explain your interest in buying a foreclosed home.
Once you’ve decided where you want to look for a house, contact one or more of these places and explain your interest in buying a foreclosed home. Make sure you’ve contacted a local mortgage lender and gotten a few different home loan quotes.
If the bank or financial institution that owns the property has an agent who handles their foreclosed properties, call them up and ask for help in finding a house.
Ask any real estate agent in your area if they have clients who own foreclosed homes that are not yet listed on the regular market.
Contact local auction houses to see if they hold auctions regularly (they usually do).
Connect with real estate investors—either directly or through websites like Zillow —to see if any of them would be willing to share information about their listings with other interested buyers.
Next, find out how many people have already made offers on the property.
If you’re serious about buying a foreclosed property, it’s important that you find out how many other buyers are in the running. Is there a lot of competition? Are there only a few other offers or just one? What is the highest and lowest offer so far?
What’s the process for submitting an offer on a foreclosed home? You can contact real estate agents who specialize in selling foreclosures, but remember that they’ll likely charge commissions on top of any fees charged by your lender as part of the purchase process.
Foreclosures are sold as-is, and sometimes with serious problems that make them difficult to sell at all.
Before you buy a foreclosed home, make sure you understand the risks and problems.
The property may have a lot of deferred maintenance that needs to be taken care of before it can be sold. If you don’t know how to fix things yourself, hiring contractors can get expensive!
There’s no guarantee that the previous owner was living in a safe neighborhood; therefore, it’s possible that the house is located in an area where crime rates are high or gangs do business nearby. (If this is an issue for you, think about moving out of state instead.)
Even if your house has been sitting vacant for years without any issues reported by neighbors or Police patrols—and even if it’s located right next door to what looks like one of those perfect American neighborhoods featured on HGTV—there’s still no guarantee that someone won’t break into your new home.
Buyers of foreclosures are often looking for good deals but are willing to take on risk for reward.
You can find a great deal on foreclosed homes. The latest statistics show that homes sold from the pre-foreclosure stage (also known as REOs, which stands for real estate owned) are selling at discounts of around 30%. That’s a huge saving compared with the price you would pay for an actively listed home.
However, these houses are often in bad shape and need a lot of work before they can be put on the market. If you don’t mind doing some renovations and have enough money to fix up your new house, then this might be a good investment opportunity for you.
The final step is to submit an offer on a home you want to buy.
Once you’ve determined the value of a home based on its appraised value and your offer price, it’s time to submit an offer.
The offer is usually in writing, but it doesn’t have to be. Sometimes sellers will accept verbal offers over the phone.
The process typically begins with submitting an offer through email or fax, which can be done directly by you or through your real estate agent. You’ll provide information about yourself and how much money you’re willing to spend on the home—this is called making an “offer.”
In addition to this basic information, you should include any contingencies that apply—for example: “This offer is contingent upon my successfully applying for financing within 30 days.”
If your offer on the house is accepted, the next step is usually to get a home inspection.
If your offer on the house is accepted, the next step is usually to get a home inspection. A professional home inspector will check out your potential investment from top to bottom and let you know if it’s worth buying.
The best choice for an inspector depends on where you live. In some areas, there are more foreclosed homes than in others; this affects how many contractors and contractors specializing in remodeling foreclosures there are as well.
If you’re buying somewhere that has few foreclosures or not many people doing remodeling work, then it’s especially important to find someone experienced with both of these issues.
A good contractor should be able to do an inspection before making any offers on properties that might need renovations—so make sure they have experience inspecting homes in your local market!
Make connections with other investors and contractors.
Make connections with other investors. You’ll need at least one friend or family member to go along with you on each visit to a home, so it’s important to network with other people who are interested in the same things as you.
Find a contractor that has experience remodeling foreclosures. This is tricky because these contractors don’t advertise their services, but they can be located through word of mouth or by approaching big renovation companies that do work for multiple properties at once (like Zillow).
Hire a contractor with experience remodeling foreclosures.
When hiring a contractor to remodel a foreclosed home, it is always best to hire someone with experience in this area. This can be done through referrals or by checking the contractor’s portfolio online.
If you find a contractor who has worked on several houses that were once foreclosed, then he/she may be your best option for completing your project.
Before hiring anyone, it is important to make sure that they have experience and are licensed as well as insured. You should also have them sign an agreement stating what work they will complete and when they expect the job to be completed (this will serve as an incentive for them).
Buying a foreclosed home is complicated, so be ready for the challenge.
Buying a foreclosure is complicated and can be very stressful. You may need to:
Repair the home yourself
Deal with a lot of paperwork, including legal documents and applications
Deal with a lot of people, from real estate agents to inspectors to contractors and more
Address many unknowns at once
Conclusion
We hope this article has helped you understand how to buy a foreclosed home. It’s a complicated process, but if you do your research and organize yourself well, then it can be an exciting and profitable venture. If you have any questions or comments about this topic, feel free to reach out!
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