Buying low and selling high is recipe for success. A home foreclosure allows you the possibility of a good deal when another owner made some mistakes. So, fix and flippers looking for a good property at a lesser price often explore the foreclosure market in search of a good bargain.
However, the process of purchasing a home foreclosure is quite different from your typical property listings near you! So if you are considering going for a home foreclosure, this should be a must-read!
What Is Home Foreclosure?
A home foreclosure is a process by which a lender or a bank take over the ownership of a property after the homeowners have defaulted on their mortgage. So, lenders and banks try to recover their investment by putting a foreclosed home on sale for slightly lower prices in less time. Get expert advice on purchasing home foreclosures here.
So, if the situation goes your way, then you might buy a property below market value as the bank or lender is more willing to get the property sold fast. This situation benefits buyers that get their hands on a property that otherwise would have been out of their reach. But what is the nuance here? How is it different from buying a home through a typical realtor?
The nuance lies in the fact that a home foreclosure has three stages and how you buy this property depends on the following:
- Pre-foreclosure: The foreclosure proceedings start when a homeowner defaults on making regular monthly mortgage payments. So, the homeowner gets a notice of default and is given a time frame to pay on the arrears such as back payments and legal fees and if these are not paid by the date of auction, then the lender will go ahead with the home foreclosure at a public auction.
- Foreclosed on (auction): A public auction allows the bank to recover the amount and it usually takes place at an attorney’s office. Often times, bidders either fight it out to get the property or sometimes very few investors show up.
- Foreclosure/bank owned or REO): When no third party purchases the home foreclosure, then the house stays with the lender/bank and is termed as bank-owned property or an REO (real estate owned). This usually happens because the opening auction amount tends to be high as the lender starts with the bid based on what they are owed and the arrears levied. So, many third parties tend to pass up the auction and wait it out.
- Government-owned: A government-owned foreclosure property is similar to the bank-owned property, but in this case the property is financed with an FHA loan. So, the government agencies take over these homes after the owners default on loans that were insured by the federal government.
How to Buy A Home Foreclosure?
While purchasing home foreclosure may be intimidating, it requires a bit more research than your typical home listing and a dash of quick-thinking!
If you are keen to buy the property, you have to show up the day of the auction and you simply bid. But if it is a sought-after property, you must brace yourself to compete with professional bidders who have a lot more knowledge than you do. You must also keep in mind that often times these auctions require that you to show certified funds up to $10,000 in order to bid. In some instances, the eligibility for you is to have the cash to pay for the foreclosed property within 24 hours, more or less. Know all about loans and loan programs from BD Capital.
So, it is always good to be prepared!
What are the steps you could take to prepare?
- Set your budget
Yes, the new home may come at a lower price tag as the lender or the bank are motivated to sell it, but home foreclosures aren’t free. Budget and list your monthly income and expenses to determine how you are going to afford the monthly mortgage payment.
- Hire/consult an experienced real estate agent
Experience is always good so what better than an experienced real estate agent who knows the local market and maybe even help find you foreclosed properties that others might miss. They will also help you determine the right price.
- Get a pre-approval letter
This is the best time to use your good credit score!
Get a pre-approval letter from a lender to make yourself an attractive and reliable buyer for motivated sellers. This builds trust as the sellers are finicky about credit issues in foreclosure situations.
- Make a competitive purchase offer
Here the stage matters a lot. If the property is in pre-foreclosure, then your real estate agent will have to present the competitive purchase offer to the individual who currently owns the home.
If it is at the foreclosure phase, then you have to contact the attorney office at the auction.
And if the house is bank-owned or REO, your agent will need to present your offer to the bank’s listing agent because a buyer’s agent cannot have direct access to the bank.
Also, the agent will help you avoid making a too high or too low offer because in both cases, you might be at loss; in the first case, you will lose money and in the second, your offer may be rejected.
- Get a home inspection
This step is important because the repairs, if any, will be shouldered by you as the seller won’t pay for them. So, if the property needs too many repairs, it is better to pass.
How to get the best home foreclosure deal?
Go through this primer and focus on what will suit you the best, be it striking a deal before the foreclosure, during the auction bidding or after the auction.
Research, research and research!
You can learn more about here from the real estate experts.