Decide How Much You Can Afford
It doesn’t matter how much a lender says you can borrow if the amount is outside your comfort zone. Decide how much works within the confines of your monthly budget and stick to that price. You can use our monthly mortgage payment calculator to estimate payments for different types and sizes of mortgages.
Research The Market For Foreclosed Homes
Research the home foreclosure market in your area to understand what price you should be paying before you bid. Your real estate agent can provide you with comps showing recent sales transactions. Good online sites to use include Zillow for home listings and RENTCafé if youll be using the home as a rental property.
What Is A Foreclosed Home
Foreclosures have been seized by the lender because the homeowner was no longer able to pay the mortgage. Most lenders will begin the foreclosure process when the owner falls three to six months behind.
Though the pathway to foreclosure varies by lender, state and the homeowner’s specific situation, the ultimate outcome is largely the same: The lender seizes control of the property and looks to resell the home as quickly as possible to minimize or recoup any losses. To speed up this process, foreclosed homes usually come at a discount and are often sold “as is” — which means that lenders may be reluctant to make repairs.
For a buyer, the primary difference between purchasing a foreclosure and a traditionally listed property is that you’re buying from a lender and not the homeowner. This changes the dynamics of finding a home, making an offer and negotiating a contract.
You May Like: Buy House In Foreclosure
Find The Home You Want To Buy
There are several ways to find foreclosures.
You can work with an agent, check out websites that list foreclosures and bank-owned properties, or keep track of local auctions. You may find a list at your local courthouse and some government agencies. Large banks, such as Wells Fargo and Bank of America, also have lists of foreclosure properties. A few of the larger online auctions include auction.com, foreclosure.com, and Bank Foreclosures Sale.
- The U.S. Department of Housing and Urban Development maintains a list of its foreclosure homes.
- Through its HomePath website, you can find foreclosure properties from the Federal National Mortgage Association .
How To Back Out Of Buying A Foreclosed Home
Your ability to back out of the purchase may depend on how far into the purchasing process you are. Generally, youre able to back out of buying real estate if you havent signed the purchase and/or financing contract that would put the title in your name. If you do back out, you could lose any earnest money you originally put down toward your purchase offer.
Don’t Miss: How Long Does Bankruptcy Take To Stop Wage Garnishment
Benefits Of Buying A Foreclosed Home
- Lower prices: One undeniable benefit is that foreclosed homes almost always cost less than other homes in the area or they are listed below market value. This is because theyre priced by the lender, who wants the home off of their books.
- Standard loan configurations: You might have to follow a slightly different bidding and buying process when you buy a foreclosure, but you still have a few loan options as long as its not a cash-only auction. As long as the home youre considering is in livable condition, you can get a conventional loan or a government-backed VA loan, FHA loan or USDA loan to buy it. Government-backed loans can make homeownership more affordable, but you if the property is damaged, the government may require work to be done.
What Types Of Properties Are Sold At Auction
While virtually any type of property or asset can be sold at auction, most home auctionsand the type youve probably heard the most about, thanks to the housing crisisare foreclosures. Depending on the state, a trustee assigned by the lender or an officer of the court conducts a foreclosure sale to recover the balance of a loan from a borrower whos defaulted on their mortgage payments. We estimate the foreclosure backlog will have grown to more than 1.1 million residential properties by the end of the first quarter of 2021, said Daren Blomquist, vice president of market economics at Auction.com.
There are two types of real estate auctions: live and online. The latter is becoming more and more prevalent as people grow more comfortable with making major purchases online.
No matter which route you choose, remember that home buying can be complicated. Companies like Auction.com are making the process more efficient and transparent, but in most cases there are still long contracts, escrow, disclosure documents and other paperwork required by law.
Read Also: Where To Buy A Car After Bankruptcy
What To Know About Foreclosures
Before moving forward with buying bank owned property, these are some points you should keep in mind:
- Homes are sold as-is there’s no way to ask an owner to fix something, like a bad roof or , prior to sale
- Patience is essential foreclosures require a lot more paperwork than a traditional sale, so hearing back from a bank can take weeks or months.
- Home quality is not guaranteed the state of homes subject to foreclosure can vary greatly, with some homes being ready for purchase and others requiring substantial work.
- The bank will typically give you a window from contract acceptance to have the house inspected. An inspection contingency is recommended, giving the buyer an option to back out if an inspection reveals anything too serious.
- Properties that sit vacantly may have other underlying issues due to long-term neglect, so understanding the potential for things like plumbing problems is important before purchase.
- Mortgage loans can be competitive, so pre-approval, particularly from the bank selling the property, can be a benefit.
Education is imperative in any property sale, and this is particularly true for purchasing foreclosures due to the complex nature of these sales.
How We Make Money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout lifes financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
Were transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.
If youre wondering how to buy a foreclosed home, consider this your primer.
Read Also: Which Bankruptcy Do You Pay Back
Q: How Is A Property Deed Conveyed With A Home Foreclosure
A: A deed is a written document that transfers property title from one party to another. Some deeds protect the buyer against any liens or claims on the property, while others warranty as little as possible. Find out ahead of time what type of property deed is being used to convey title to the foreclosure home youre bidding on.
Make A Competitive Offer
Work with your agent to get an idea of comparable home prices so you can make a smart offer that fits your budget. After all, in a live auction situation, you definitely want to know your limit! But even if you’re buying a home that’s been bank-owned for some time, you’ll want to be strategic.
In a hot real estate market, you may need to offer the full asking price. But even in a more balanced market, a low-ball offer may not fly. The bank may already be asking what it considers to be fair market value and be unwilling to go lower. With an auction site, you may need to meet a reserve price for your offer to be considered.
Read Also: When Can Bankruptcy Be Removed From Credit Report
Pros And Cons Of Foreclosed Homes
As you look for foreclosed homes, be sure to keep the benefits and drawbacks in mind.
Pros
You could save a lot of money. A major perk of buying a foreclosed property is the savings. In terms of a foreclosure, the lender is strongly motivated to sell the home, giving the buyer a strong negotiating position.
Needed repairs could give you an opportunity to customize the home. If the house were perfectly move-in-ready, spending money on renovations may feel wasteful. But if you already have to make some repairs, spending a little extra to get exactly what you want may be worth it.
You could make a profit. Even if youre not a professional house flipper, selling a foreclosed property that you fixed up and lived in for a while can still net you some cash.
Cons
Buying a foreclosed home can be a long process. Purchasing foreclosed properties generally involves more paperwork. The average foreclosure process during the second quarter of 2022 took just under three years, according to ATTOM Data Solutions.
A foreclosed home can have hidden debts. Foreclosed homes can have outstanding taxes or unpaid liens on them that new owners will have to pay. The exception to this are REO homes. A title search should reveal if there are any issues, and title insurance will protect you from any new ones.
You may be competing with many buyers. Other homebuyers, professional home flippers and real estate investors can all smell a good deal. You might have some stiff competition.
Work With A Bank Or Accredited Broker
Foreclosed properties are sold on an as-is, where-is basis, so as a buyer due diligence is of utmost importance. But this is easier said than done, especially if you have several properties lined up for inspection, not to mention documents and titles that must be verified. However, working with a bank or its accredited broker/brokerage greatly reduces the risk of ending up with problematic property.
Don’t Miss: What Is The Chapter 13 Bankruptcy
Get Your Financing Ready
As with any competition, having an edge over other buyers will give you more chances of getting the foreclosed property you want. When you have already been prequalified for a housing loan by a bank or financial institution, you will attract more attention from sellers. They will know you are a credit-worthy and serious buyer who has a housing loan approved that you can use anytime. Because of this, you will have more negotiating leverage compared to other buyers. In addition, getting pre-approved helps you stick to a budget.
Determine What You Can Afford
Before you start looking at foreclosed homes, you will need to determine how much home you can comfortably afford. You will want to make sure the costs for your mortgage, property taxes and insurance are typically no more than 36% of your income before taxes and other deductions. Please visit our home loan guide to learn more.
If you decide to move forward with a purchase1, getting prequalified gives you the advantage of being better prepared to make an offer. Getting prequalified is a process in which a prospective borrower provides financial and other information, such as employment history and funds for a down payment, in order for a lender to determine how much loan the borrower may obtain for the purchase of a home. In addition, a prequalified status shows you are not just browsing, which in turn makes you more attractive to a seller.
The REO market offers buyers a unique opportunity to invest in a variety of properties in a diverse range of conditions and price ranges. Foreclosed homes can vary from a regular home purchase, and you will want to research all loan products available for this type of transaction, including traditional loan products or an FHA 203 Renovation Loan .
Bank of America has loan products that can help with the purchase of an REO property. Beginning the prequalification process is easy and you can get started at the Bank of America Home Loans website.
Also Check: What Happens When You Declare Personal Bankruptcy
Should I Buy A Foreclosed Home In Pennsylvania
The decision to buy a foreclosed house or not depends on your circumstances and the type of foreclosure you’re interested in.
We recommend buyers who are in a hurry focus on pre-foreclosures, as those are more likely to close quickly and allow for conventional financing.
Buyers who want a standardized experience working with professionals should consider REOs as a primary focus. These transactions go slower, but REO departments handle foreclosures all the time and have a tried-and-true method of selling them. These propertiesare also required by law to have the title checked and cleared before being foreclosed on, so there’s an additional safety net for buyers.
We recommend you avoid auctions unless you’re a professional investor, flipper, or contractor. Auctioned foreclosures usually require substantial cash up front and may need significant rehabbing.
If you decide to buy a foreclosure, we also recommend working with an experienced agent that can help you get the first crack at great opportunities and avoid money pits.
Consider talking to one of Clever’s recommended agents to see how they can help you find and buy your next home.
How Long Does It Take To Buy A Foreclosed Home In Pennsylvania
This can vary a lot, but if you’re buying a pre-foreclosure or REO with conventional financing, you’ll need an inspection and appraisal, so closing will take at least 30-45 days. The foreclosureprocess itself can take months, but you can shorten that wait time by purchasing during the pre-foreclosure stage.
Auctions can’t be scheduled until the foreclosure process is complete, and they can be postponed up to another 100 days after the initial scheduled date. That said, paying for and closing on an auctioned property shouldn’t take more than a coupleof weeks.
Read Also: What Is Better Bankruptcy Or Debt Consolidation
Differences Between A Typical Real Estate Transaction And The Purchase Of An Reo Property
Negotiating the purchase price of a foreclosed home may take a little longer than a typical real estate transaction because the process may require multiple levels of approval. First, the bank will have to approve the offer. In some cases, an investor may own the property and will have to provide approval as well.
Pricing for a foreclosed home is typically set at market value in an effort to move the property quickly. You will want to submit a fair and reasonable offer, as most banks will list properties at a fair price.
There are several considerations to keep in mind when purchasing an REO Property:
-
Unknown property condition
- Given that the bank has not maintained or had first-hand knowledge of the foreclosed home prior to acquisition, there may be no record of property repairs or maintenance that would assess the true property condition. As a result, the bank is often unable to verify the condition of the property or complete a Sellers Disclosure.
- Buyers are allowed and encouraged to complete professional home inspections on the property.
Be Prepared To Commit To A House As
Foreclosures are mostly sold as-is, which means any repairs are your responsibility. You could request a repair in some cases, but the entity owning the home may not be willing to credit you for it. Because the foreclosure market is competitive right now, you might have to place an offer or bid before viewing or inspecting the home.
If there are material defects with the home, like plumbing or the roof, you as the buyer are responsible for that. You take that on as your own risk, and youre doing it because youre getting such a good price for the home, Charlie says.
Read Also: What Happens To Your Assets When You File Bankruptcy
Stage : Foreclosure Auction
If the owner cant manage to hang on to the property, it will probably go up for sale in a foreclosure auction next. Successful bidders usually have to pay in cash at the time of purchase, and theres not much time or opportunity to research the property beforehand.
A foreclosure auction offers some tempting bargains but the buyer assumes all risk of anything going wrong with the title, condition or any other aspect of the property. Its a big bet to make, and not for the faint of heart. Read more about buying at a foreclosure auction.
Five Tips For Buying A Foreclosed Property
As unfortunate as it is, there are times when borrowers cant repay their home loan. Be it through circumstance or general unwillingness, some dont keep up with their repayments. Most lenders will wait for three months before taking action. When they do, they usually evict the homeowners, take possession of the property, and try to sell it.
This is usually a heartbreaking situation for the previous owner. However, it potentially offers you the opportunity to buy a property at less than its market value.
Most lenders try to sell foreclosed properties at auction. As a result, there are a few things you need to keep in mind if you want to buy such a property. Here are our top five tips for buying foreclosed properties.
Read Also: How Long Should A Bankruptcy Stay In The Credit Report
