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.
Due to the pandemic, the government-sponsored enterprises and agencies that back home loans have halted foreclosures. Some local governments have also paused tax auctions. Combined with the large number of people looking to buy homes, struggling homeowners may be able to sell rather than face foreclosure. On the whole, this means that there may be fewer foreclosed homes on the market than usual.
Make Offers On Homes That Fit Your Needs And Price Point
The way you approach this step depends on the type of foreclosure home you want to purchase. If you plan to buy one that is real estate owned or government owned, you or your agent have to make an offer to the real estate agent working with the bank to sell the home, or to the government agency itself.
If you want to purchase a foreclosure home that is about to go to auction, you or your agent have to make an offer to the person in charge of the auction. In pre-foreclosures, you or your agent have to make an offer to the homeowner.
If you’re using a real estate agent, work with them to establish a contingency plan as part of the offer to make sure you can have the home inspected before your purchase is finalized.
Pay For An Inspection And Resolve Liens On The Home
Once your offer is accepted, youll have a period where you can arrange for inspections. If its allowed, you may find it wise to inspect the property prior to putting an offer down to buy a foreclosure. In general, inspections cost anywhere from $400 to $800, depending on what options you choose. For a foreclosed home, youll want a thorough home inspection, including add-ons such as a termite and radon check, along with a sewer and water line assessment. The more you know up-front about the state of the home, the better.
As for resolving liens, many foreclosed properties have more than one loan. The previous owner may have had a piggyback loan from a different lender than the main loan. A reputable title company can help you sort through the liens and untangle any potential conflicts before you move forward with the loan. If everything checks out, you can move forward towards closing.
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How Long Do People Have Before Foreclosure Looms
After a certain number of months of not paying the mortgage, lenders can begin foreclosure procedures if no agreement can be made. That means that the first public notice will be in the form of a Notice of Default. This is a public record, and thats how people find out about pre-foreclosure homes.
The timespan of how many days a homeowner has before the proceedings begin varies from bank to bank. But new laws after the housing collapse give people a standard of 120 days.
During this whole time, hopefully, lenders are talking to the homeowners. They want to help them get on track again, Blomquist says.
It varies from state to state after the notice of default of when the home will go up for public auction. Texas has the shortest time and can be as quick as one month. New York and New Jersey have the longest period of six months to a year.
However, those are averages. Those auctions can be postponed many times, he says.
Who Should Not Buy A Foreclosed Home
Shopping for a foreclosed home is time-consuming and frustrating. Finalizing a deal is worse.
If you need a home right away, or you aren’t emotionally prepared to handle repeated disappointments, you probably shouldn’t take this on.
It’s also a bad idea if you’re shopping at the top of your budget. You may well need some extra cash to cover unexpected costs.
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Learn The Different Stages Of Foreclosure
Buyers can purchase a home during or after the foreclosure process. In most cases, these are the stages of foreclosure:
Close The Sale And Pick Up The Keys
If the bank approves your offer and the inspection doesn’t turn up any serious red flags, your sale will progress as normal. There is often a lot of paperwork and back-and-forth discussion between the bank and your agent, so patience is important. Your agent will keep you updated on the process. As soon as the transaction is complete, you will receive the keys and title to the house.
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How Does A Foreclosure Auction Work
If youre an auction newbie, attend a few with the intention of learning not buying. Some are small trustee auctions that dont take long others are held by large auction firms and include multiple properties. Seeing how the auction works will prepare you to jump in once youve found a property you like. Once that happens, use Zillows Foreclosure Estimate to determine what the home will likely sell for.
When youve found a property you want to bid on, contact the auctioneer or trustee to determine how much money you need to bring to the auction the amount varies from state to state. Many auctions require bidders to bring a certified check for $5,000 made out to the auction company to show legitimate intent. In some cases, a percentage of the winning bid is required on the day of the sale. Make sure you research auction requirements in your state before bidding on a foreclosure.
And remember that your auction bid is absolute. Read more about foreclosure auctions, including tips from veteran auction-goers.
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
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Can Anyone Buy A Foreclosed Home
You can also buy a foreclosed home directly from a bank or lender on the open market. At this stage, the bank has secured the home at an auction and is now selling the home to recoup whats owed on the property. The bank will likely hire a local real estate agent to put it on the market.
What kind of credit score do you need to buy a foreclosure?
Youll need at least a 620 credit score and a 3% down payment to qualify. FHA loan. An FHA 203 loan also provides financing for both buying and renovating a home. The credit score needed to make the minimum 3.5% down payment is 580.
Buying A Foreclosed Home: Where To Search How To Buy And What To Watch Out For
The deals are real, but there are risks involved.
Luke Daugherty
Luke Daugherty is a freelance writer, editor and former operations manager. His work covers operations, marketing, sustainable business and personal finance, as well as many of his personal passions, including coffee, music and social issues.
If you’re searching for a house to buy — and you’re looking for a deal — a foreclosure may be an enticing option. Foreclosed properties, which have been taken back by a lender after the homeowners defaulted on their loan, usually sell for significantly less than similar homes on the traditional market.
The lower price tag has a few strings attached, though. Buying any house can be complicated — and a foreclosed house especially so, with its own unique set of risks and challenges. Learn more about how to buy a foreclosed home to decide if it’s a good option for you.
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How Fast Do Foreclosed Homes Sell
When a mortgage company forecloses on a property, it takes possession of the house and then sells it at auction or to a buyer. The foreclosure process often takes four months to several years to complete. However, this varies widely by state.
When a mortgage company takes back a house through foreclosure, it usually becomes part of the companys real estate inventory to be sold at auction or to a bidder who makes an outright purchase. Some properties acquired through foreclosure may sit unsold for an extended period.
What Does It Mean For A Home To Be Foreclosed On
When a homeowner fails to make mortgage payments, lenders have the option to seize a home, a process known as foreclosure. Much like a car loan is tied to the collateral, the vehicle, your mortgage is tied to your property.
If you fail to make payments, your lender has the right to seize the collateral your home. In some states, foreclosure is a lengthy legal process that can take years. In others, it can take less than a few months and bypass the court system completely.
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Conduct A Home Inspection
Before making an official offer, you must know what youre buying. Thats not possible at an auction sale. But when youre buying an REO or government property, it makes sense to order an inspection.
A home inspection will let you know if anything is wrong with the property. A qualified inspector will come to the house and make note of anything that needs to be repaired or replaced.
An appraisal is a less in-depth inspection required by your lender. The appraiser will evaluate the property to confirm its value. After all, your lender doesnt want to pay more for the property than its actually worth.
Foreclosure Listings Subscription Sites
RealtyTrac. Theres a free 7-day trial after that, its $49.95 a month, with discounts on multi-month packages. Members get access to RealtyTracs proprietary information, including auctions dates and locations, pre-foreclosure addresses, owner information, bank loan amounts and more.
Foreclosure.com. After the free 7-day trial, its $39.80 per month. Subscribers receive detailed information on the listed properties, tax roll data, files provided by the lender, local school districts and other listing details.
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Is A Foreclosed Home Right For You
At the end of the day, its important to weigh the pros and cons, consider your goals as a homeowner or investor, and take a hard look at your finances and ability to improve the home before buying a home at auction. Though a foreclosed home may seem appealing on its face, there are a lot of nuances to buying these troubled properties and knowing the full scope of what youre getting into can help save time, cash, and serious hassle.
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How Do I Get A Good Deal On A Foreclosed Home
When youre investing in real estatethe keyword there being investingyou make money by finding a good deal first, then selling at a higher price later. This means you want to buy something below market value.
One of the most important rules about buying foreclosed homes is that you must get a good deal. As an investor, you can generally consider a home to be a good deal if you can get it for 80% or less of market value minus the cost of repairs.
Even if youre taking the house as is, your offer should still account for the cost of repairs youll have to make after you buy it. You just need a home inspection and a good bid on repairs so you can apply the formula for getting a deal on the house:
80% of the appraised value minus the cost of repairs
For example, lets say you find a foreclosure listed at $125,000. You and your real estate agent agree this is a fair market value for the house in pristine condition. But its not in pristine condition and your contractor estimates repairs at $15,000.
Now do the math: 80% of $125,000 is $100,000, minus repairs of $15,000 equals $85,000. Thats the offer you make. Remember, the deal is made at the buy. That means you dont buy unless youre getting a deal. Youve got some room to negotiate, but dont go into debt to get the deal done.
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$15,000 |
$85,000 |
Okay, so what if youre not an investor? Is it still a good idea to look at a foreclosed home as a first-time home buyer? Maybe.
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Get The Property Inspected
Getting a home inspection is always a good idea, but it is particularly important when buying a foreclosed home. Given that the bank has not maintained or had first-hand knowledge of the REO property 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. Be sure to have a licensed home inspector evaluate the condition of the house. Most REO homes are sold as-is, and the cost of repairs typically becomes your responsibility. Make a list of everything that needs to be fixed, research the costs, and factor in those costs to any offer you make to ensure you could cover the costs on top of your new mortgage payment. Please keep in mind, de-winterizing a home may be necessary to complete the inspection.
A property inspection is encouraged and will help you determine:
- Condition of the home
- A fair and reasonable offer
- Funding the purchase
If you find that repairs are needed for your REO purchase, you may want to consider an FHA 203 Renovation Loan. An FHA 203 Renovation Loan is a mortgage that can cover the purchase price plus funds for renovation by financing the as improved value of the home.
What Is A Foreclosure Home
When you sign a mortgage, the bank puts a lien on your property, and this lien entitles them to take possession of your home if you stop making your monthly payments.
When a person falls behind on their mortgage, the bank initiates a process called foreclosure. Foreclosure is a legal process where a court orders the homeowner to leave the property, and the bank takes ownership. The bank can then sell the property to make good on its losses.
A foreclosed home can be an excellent bargain. Banks are often willing to sell below market price just to unload the property quickly. The longer they hang onto it, the longer theyre responsible for repairs, maintenance, and taxes. That said, buying a foreclosed home also presents its own challenges and pitfalls.
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