The Bottom Line: Consider Purchasing A Foreclosed Home
If youve dreamt of making the move to homeownership but your budget is tight, buying a foreclosed home might be the right choice for you. Its possible to find foreclosed homes that are being offered at below-market rates.
Again, dont rush into this decision. Its best to work with a real estate agent who can explain both the pros and cons of buying a foreclosed home in your community. And before you make an offer, be aware of the additional risk you might be taking on when you dip into the foreclosure market.
Already on the search for a foreclosed home to purchase? If youre not sure how to budget for a mortgage, use our mortgage calculator to estimate how much principal and interest youll pay each month.
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Find pre-foreclosures, foreclosure auctions, and bank-owned properties in your area.
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Search For Foreclosed Homes Near You
You’ll see properties that are marked as foreclosures or pre-foreclosure on the MLS and on real estate listing websites that pull from the MLS. But that’s not the only place to find foreclosures.
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Auctioneers are legally required to post notices of sheriff’s auctions prior to the sale. This means there’s a sign on the property and, perhaps more easily found, a notice in the local newspaper, which includes on the paper’s website. Some cities and counties host larger auctions, which may include empty building lots or former municipal buildings.
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Government agencies and government-sponsored enterprises sell foreclosed homes. This includes Fannie Mae, Freddie Mac and the Department of Housing and Urban Development. Their sales tend to be geared toward first-time home buyers who intend to be owner-occupants rather than real estate investors.
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Websites that specialize in home auctions, like Hubzu and Auction.com, feature foreclosed properties. Watch out for “convenience” charges, which usually have to be paid directly to the auction site.
Get Your Financing In Order
Before you start looking to buy a foreclosure at foreclosure auctions or through REO listings, its important to make sure you can get a mortgage. Buying with cash is the surest way to secure a property, but thats not an option for most homebuyers. If youre planning on using a loan to buy a foreclosure, youll want to prequalify and gain preapproval before you start looking. This is because youll have to show proof of funds before your offer is accepted, most of the time when buying a foreclosed property. They wont wait around for you to go get financing.
Preapproval will give you your mortgage rates and terms before you put an offer in. While you may think that getting a mortgage through the bank selling the property is your only choice, its not. The lender treats the foreclosure and new loan as completely separate transactions, and they are. As a result, its not easier or even advantageous to use the same bank, unless the rates and terms make sense for you. Finding the perfect mortgage lender doesnt have to be hard.
If youre planning on making a cash offer to buy a home, instead, then youll need to get your funds together and make sure they are ready to move when the owner of the home approves your bid. Youll have to move quickly once that happens.
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Get A Preapproval Letter
Unless you can afford to pay cash, youll want a mortgage preapproval letter in hand when you make an offer on a foreclosure. It separates the lookers from the buyers, Soffee says.
Preapproval letters detail how much money you can borrow based on the lenders thorough assessment of your finances, including credit score and income. Its always good to be prepared, Sklar says. Having your proof of funds will make it an easier transaction.
Youll also want to consider what kind of loan to get preapproved for. Foreclosed properties often require repairs or upgrades, and an FHA 203 loan can help. These loans allow buyers to finance up to $35,000 for repairs.
Foreclosures often get scooped up by real estate investors who pay cash. But dont let that discourage you many lenders will help you find the right financing to buy a foreclosed home. Find a mortgage lender who understands your goals.
Do I Need Good Credit To Buy A Foreclosed Home
If you plan to finance your foreclosure purchase, you’ll need to qualify for a mortgage just as though you were buying from a homeowner. As with any home loan, the lender will likely want to see evidence that you can afford the monthly mortgage payments, and they’ll probably run a credit check as well.
Your will likely play a role in a lender’s decision to issue you a loan and may also factor into the interest rate and fees they’ll charge you. Whether you’re financing a foreclosure or a more traditional home purchase, higher credit scores generally lead to better borrowing terms.
Before applying for foreclosure financing, it’s always a good idea to review your credit report and check your to know where you stand. If you can wait and your credit score has room for improvement, focus on raising your credit score for a year or so before applying for a loan.
Foreclosed homes can be a great launching pad for real estate investment, or even a path to a more affordable home for you and your family. If you understand what you’re getting into and how to size up foreclosure properties, you could get a terrific bargain.
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Look At Comps To Determine What To Offer
Finding the right price to offer is as much an art as it is a science. Your agent can run a comparative market analysis , which helps you understand recent sale prices of comparable properties, or comps.
Soffee says he runs a CMA from the last 180 days and evaluates several factors, including the pace of home sales, tax assessment history and a deeper analysis of similar properties nearby that have recently sold.
If youre up against cash offers, knowing this information can help ensure your offer is a competitive one. Your lender will require an appraisal to assess the homes value, so keep that in mind when making your offer, as well. If theres a shortfall between your offer and the homes appraised value, you might have to make up the difference in price if the bank doesnt budge.
The Property Is Coming As
When you buy a foreclosure, there are no repairs or seller concessions made on the property no matter what the issues are. If youre buying an REO foreclosure, youre typically allowed to have an inspection completed on the propertybut you’ll pay for it out of your own pocket and it wont be a negotiating tactic because foreclosures come as-is.
In an auction setting, the tradeoff for getting the property at a cut-rate price is that you probably won’t know what youre walking into besides apparent cosmetic damage or structural issues you can spot prior to the auction. It really is buyer beware with these properties, as the as-is status could end up costing you a lot more than you bargained for.
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How To Find A House That Has Been Foreclosed On But Not Listed
Finding the right foreclosure at the right price often means jumping on it as soon as it’s listed and fighting off other home buyers who are looking for good deals. However, most banks don’t list foreclosed homes immediately. It takes time for banks to wade through the paperwork, evict current homeowners and fix up the homes when necessary. Contacting the bank before it has listed the home for sale can keep you out of a competitive bidding war.
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Check your local paper’s public notice listings to find out which homes are going to be auctioned on the courthouse steps and the estimated date of auction. The banks must run a public notice once a week for four weeks prior to the auction, so this gives you a chance to check out the neighborhoods of the upcoming foreclosures. The notices usually list the name of the bank and the bank’s attorney, so you can contact them directly after the auction date has passed.
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Visit your county courthouse and ask to review public records of recent foreclosure proceedings. Search by zip code, city name or sometimes neighborhood, depending on your county system’s capacity. The listings will give you the status of the foreclosure, such as in process or completed, and relevant dates, such as an upcoming or recently completed auction.
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Decide: Renting Or Flipping
Will you be renting the property or putting it back on the market to flip? Or both? If you have a network of like-minded real estate investors at your fingertips, putting a renter in the home can recoup some of your investment and/or cover the monthly payment if you took out a swing loan to buy the property in cash. It will also make buying the home more attractive for another investor.
You can also explore your options for the type of rental property youd like to make your new asset. Section-8 housing is favored by some investors who work with low-end foreclosure properties. Other investors like to put in their own renters or use the services of property management company.
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What Are Reo Properties
Real estate owned properties, or REO properties, are houses that have been seized by banks or other lenders from people who are unable to pay their mortgages. Essentially, its a foreclosure that has been seized by the bank. When real estate lenders offer mortgage loans, they see them as an investment, because they will earn money from the interest on the loan. So to salvage their investment, banks foreclose on homes with unpaid mortgages and sell the properties at a foreclosure auction. If a home doesnt sell at auction, it becomes an REO. Theres a subset of REO properties that are owned by the government. They are called Hud houses, and they often sell well below market value to eligible participants.
How Do I Get Reo Listings
How to Get REO Listings from Banks Tips from a Seasoned REO Seller. Option 1: Sign Up With REO and BPO Management Companies. Option 2: Get Listed in REO Agent Directories. Option 3: Search Bank REO Lists. Option 4: Get REO Listings Directly From Banks. OFFER BPOS, OCCUPANCY CHECKS, AND PROFESSIONAL GUIDANCE.
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Find Foreclosed Homes In Georgia
If you’re an inexperienced buyer, we recommend you focus on pre-foreclosures or REOs because they’re more similar to traditional home buying.
Properties in these stages of foreclosure are often listed on the local MLS , which means your agent may be able to alert you to them before they appear on popular real estate sites. You can also find these properties by filtering for foreclosures or auctions on sites like Zillow or RealtyTrac. To find government-owned foreclosures, you can search the HUD home store.
Only seriously consider auctions if you’re experienced in real estate, have substantial cash reserves, and are willing to take the risk of buying a home sight unseen.
You can find auctions listed in the real estate or legal notices section of your local newspapers or by searching “foreclosures” on georgiapublicnotice.com and auction.com.
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Tips About The Auction Process
Foreclosure auctions are usually run by a local county representative or a private company. Buying a foreclosure at a real estate auction means learning how the specific in-person auction or auction website works. Here are some tips.
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Veterans Administration Loan Program
The federal Veterans Administration has a mortgage guarantee program that is open to current service members, veterans, and surviving spouses. According to Military.com, the loans can be used to buy repossessed properties, although a bit of advance preparation is needed.
Benefits include zero down-payment loans, reduced closing costs, and a waiver of the mortgage insurance requirement.
Tips For Buying A Foreclosure
Over the years working as a real estate agent, many buyers have asked me about buying a foreclosed home. They essentially are asking how to buy a foreclosure.
The appeal is that theyve heard foreclosures are the bargain of the century.
If you are considering buying a foreclosed home, it is essential to do your homework before making an offer on a property and putting up your earnest money.
Foreclosures can certainly be a great deal but they are not always as much of a bargain as people assume they will be.
Buying a foreclosure also requires going through a slightly different process than a traditional home purchase. There are certainly pros and cons to buying a foreclosed property.
In the end, buying a foreclosed home can be very rewarding, but only in specific circumstances.
Lets take a look at the foreclosure process to figure out if its right for you. If you can get a good deal it just might be!
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Research The Different Methods For Buying A Foreclosure
As with any major purchase, the first step in purchasing a foreclosed house is research. Thats because there are several different ways to buy a foreclosure, and the best method for you may vary depending on your needs.
Here are the most common purchase paths to consider.
Buying From The Homeowner
A pre-foreclosure, or short sale, can occur when the homeowner still owns the property and knows theres a potential for foreclosure. Owners want to sell their home before they end up in foreclosure. This means that short sales arent technically foreclosure sales.
Short sales can also prove to be challenging. In a short sale, owners get permission from their lender to sell their residences for less than what they owe on their mortgage. If the owners owe $180,000 on their mortgage, they might still list the home at $160,000 even though such a sale leaves them $20,000 short of being able to pay off their entire mortgage loan.
In some short sales, the owners bank agrees to take this loss as a way to get the home sold and the mortgage off their books.
The goal for the owners is to offer their home at a price thats low enough to ensure a quick sale before they fall behind on their monthly payments. Buying at this stage can be tough, though. Even if the sellers agree to your offer, their bank or lender might reject it if its too low.
Buying At An Auction
There are also plenty of risks:
Buying From The Bank
Buying A Government-Owned Property
Get Preapproved For A Home Loan
A mortgage preapproval is vital to show that you’re a serious buyer. Foreclosures are often purchased by real estate investors, who tend to pay cash. If you need to compete with cash offers, you want to be able to show that you’ll close the deal. A preapproval lets the seller know that you’ll be able to get the funds to buy the property.
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