Are you looking to get a good deal on a piece of real estate? You should consider buying a foreclosed property. Banks don’t want to hang onto properties that they’ve seized from buyers in default, and are often willing to sell to the highest bidder. So you can get a good deal on a foreclosed property, and even end up owning a property worth more than you paid for it.
However, buying a foreclosed property does have its drawbacks. For one, if the previous owners couldn’t afford to pay their mortgage payments, they were probably struggling to keep up with repairs and maintenance on the home, too. You’ll find that there can be a lot of competition for foreclosed homes, and buying one can take longer than buying a home that isn’t in foreclosure.
How Distressed Homes Are Sold
Distressed homes consist of homes that are about to go into foreclosure as well as homes that are in foreclosure. You can buy homes in preforeclosure, at which point they are still owned by the previous owner, but the owner is in no position to haggle for the best price. If a home is listed as a preforeclosure, the homeowner has been notified that they’re in default, and is trying to sell the house for whatever they can get before it goes into foreclosure, so they can avoid having a foreclosure on their credit.
Sometimes, homes might be sold as short sales, which is when a mortgage lender agrees to accept a lower payoff amount than the mortgage is worth. Homes that are underwater may be listed as short sales. The borrower may be experiencing some other sort of financial hardship, instead, and may be unable to pay off the entire mortgage as a result.
Sheriff’s sale auctions occur to sell homes that have been foreclosed upon and seized by the bank. Lenders are hoping to get as much as they can for their properties and dispose of them quickly. They’ll sell to the highest bidder. You can find notices of upcoming sheriff’s sale auctions online and in your local newspaper.
You can also buy foreclosed homes directly from banks or from the government agencies that guarantee loans used to buy foreclosed homes. Talk to a real estate agent who specializes in foreclosures or visit a database like Freddie Mac HomeSteps or Fannie Mae HomePath.
Foreclosed Homes Are Sold “As Is”
When you’re buying foreclosure properties, it’s important to remember that they’re almost always sold “as is”.
That means you can’t negotiate with the seller to make repairs like you can if you’re buying a house at list price. Furthermore, foreclosed homes are more likely than others to need major repairs.
You should definitely have a foreclosure property inspected before you buy, so you’ll know what you’re getting into.
Competition for Foreclosures Can Be Stiff
It can be hard for an individual investor to get their hands on a good foreclosure property, especially in hot markets. Professional house flippers, real estate investors, and potential occupants are all competing to get the best prices on the best foreclosure properties in your area. Lots of individual would-be buyers give up in the face of stiff competition from professional and corporate buyers. Bidding wars can break out over the most desirable properties. If you’re hoping to buy a foreclosure yourself, it helps to put in bids on multiple properties.
Private Lenders May Be Reluctant to Loan You Money to Buy a Foreclosure
If you can’t afford to pay for a foreclosure property in cash, you’ll have to get a mortgage to fund the purchase, but many lenders may be reluctant to give you a loan to buy a foreclosure property. You may need to get a Federal Housing Administration (FHA) 203(k) loan, a Fannie Mae HomePath ReadyBuyer loan, or a Freddie Mac HomeSteps loan.
Buying a Foreclosure Property Takes Time
If you hope to close on a house quickly, then you shouldn’t buy a foreclosure, unless you’re going to buy at a sheriff’s auction or you want to buy in the preforeclosure stage, when you can make a deal with the distressed borrower directly. It can take months to get a response to a short sale offer, or any offer made directly to a lender.
Buying a foreclosure property can be a great idea if you want to get a good deal on a piece of real estate, but it’s not for the faint of heart. It might take a while to get to close on a foreclosure purchase, but it’ll all be worth it once you have the keys.