With a record number of home foreclosures available, it has never been simpler and easier to get into your dream home for less. Searching the sea of foreclosures and then buying a foreclosed property can be somewhat challenging, but if you do your legwork and follow the six steps below, you will land the deal of a lifetime in no time.
Understand the Process
While you likely hear the “f” word (foreclosure) being slung around with haste these days, do you really comprehend what it entails? Foreclosure is a complicated process that allows a bank or other lender to recoup the money that is owed to them on a home loan that has gone into default. The bank accomplishes this by selling the home. The process of foreclosure begins when a homeowner defaults on their loan payments and the legal process of recovering the home begins (which can vary from state to state).
Contact a Realtor
It is essential when looking to buy a foreclosed home that you contact a realtor, especially if you are a first time homebuyer. A good realtor can guide you through the process of buying a foreclosed home, including showing you properties that are available all the way through drawing up a purchase agreement; including researching comparable sales, pre-inspecting the home, ordering title work, advice on home warranties and of course the negotiation. Your realtor is invaluable to saving big and not getting burned during a real estate deal, especially when the seller is an aggressive lender.
Be Comfortable With Foreclosure
There are several stages in the foreclosure process, each of which has its distinct pros and cons for you as a buyer. For example, if you are uncomfortable dealing with the distressed homeowner (a Short Sale), you may want to search only for bank-owned properties. Your realtor can help you to understand what is involved in each foreclosure stage.
Look for Foreclosed Properties
While your realtor can help you to find properties that interest you, you can also subscribe to listing services and browse your realtor’s website to locate possible homes that you like. You can also look in your local newspaper and search for notices of default and auctions in public records. Be wary of any site that charges a fee for their information as it’s all available for free.
Find Financing for Your Home Foreclosure Purchase
Perhaps you have already been pre-approved for a home loan, or you plan to use a home equity line of credit or even cash to make your home purchase. Having financing in place beforehand positions you as a serious buyer who is ready to move. Don’t miss out on any opportunities by waiting to find a home before determining how you will pay for it. This is especially true if you are looking at pre-foreclosure short sales and foreclosures. The seller of these properties will insist all offers be presented with proof of appropriate financing.
Make an Offer
Typically, an offer on a foreclosed home is somewhere in the neighborhood of below market value but greater than the debt owed against it. When making an offer, take into consideration any repairs that the home needs. If the property is owned by the bank or is in pre-foreclosure, then make sure that your offer is contingent upon a title search. You should consider having the home professionally inspected, but this should be done before making any offers and often the utilities are turned off on these properties making the process more challenging.
While a foreclosed property purchase is the right move for many first time homebuyers and around six out of ten first time homebuyers start their home search by looking for homes that are in foreclosure, only five percent actually buy a foreclosed property. The complicated process of buying a foreclosed home can be tricky, requires patience and comes with a little more risk. But those who do can save several thousand dollars or more by going for a foreclosed property.