Purchase Your New Home
Read your inspection and appraisal results then decide if the home in question is really right for you and whether youre okay with buying a home as-is. Contact your mortgage lender to finalize your loan if you have the money or skills to make any needed renovations. Your real estate agent will help you submit your offer and prepare you for closing.
Find a local pro.
What Is A Foreclosure
Foreclosures happen when a lender takes a property from an owner who has fallen behind on payments and defaulted on their mortgage. Lenders will then try to recoup as much of their investment as possible by selling a foreclosed home for slightly less than it might be worth. In the right situation, you are getting something below market value because the bank is motivated to get the home sold, says agent Rose Sklar of the Sklar Team at Coldwell Banker in Weston, Florida.
Other Ways To Find Foreclosed Homes
Other ways to find foreclosed homes include property websites listing foreclosures search online for foreclosures or REO property investor networking clubs, big-bank websites like Wells Fargo or Bank of America, and the websites of government-sponsored companies like Fannie Mae and Freddie Mac.
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How To Buy A Foreclosed Home In 5 Steps
The process for buying a foreclosed home can be summed up in an easy five-step process, as outlined below. This is the same process as buying a home that hasnt been foreclosed on with a few small changes. For one, youll likely be working directly with a bank or mortgage lender that now owns the property and they could be much less responsive than an individual selling their home. Also, the way you find foreclosed homes can be different than your traditional housing search.
The five steps for buying a foreclosed home are:
Get The Home Inspected To Determine Additional Costs
Contact a home inspector to look over the home you want to purchase. They will give you a detailed report of repairs needed, and point out any potential problems with the home’s foundation or overall structure. Some home inspectors also provide a cost estimate for the repairs. This will help you determine if the house is still in your price range after considering the work that needs to be done. Note that this is not the case with auctioned foreclosure properties because you have to bid on and purchase them before you can do an inspection, so weigh your options carefully.
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How To Buy A Foreclosed Home
You might be intimidated by the thought of buying a foreclosed home. But the process of purchasing a home in foreclosure isnt too different from the traditional way of buying a home. Buying a foreclosure does require additional research, and youll need to be comfortable taking on a bit more risk.
But if you work with a real estate agent who understands your local foreclosure market, the stress shouldnt be much higher than during a traditional home buy.
Here, then, are the steps you need to take in order to successfully buy a foreclosed house.
Why Are Houses Foreclosed
Foreclosure is rarely a choice homeowners make willingly. In general, foreclosure only occurs when there are no other options. Foreclosures are most common due to job loss, serious medical conditions that prevent ongoing employment, serious maintenance issues with the home that a homeowner can’t afford to fix, divorce, or other drivers of consumer, educational, or medical debt.
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Why People Buy Foreclosures In The First Place
Over the years, a secondary industry has evolved around the foreclosure process. Companies like RealtyTrac sell access to foreclosure listings. Buyers and investors use this information to find foreclosed homes for sale in their desired area. But why? What is that motivates these people to buy foreclosure homes in the first place? The answer can be summed up in a single word — savings.
When you buy a foreclosed home, there is a good chance you’ll pay less than market value for the house. According to data compiled by RealtyTrac from 2010 – 2011, foreclosure homes are selling for an average discount of 27%, when compared to non-distressed / non-foreclosed properties. In some states, the potential for savings is even greater. According to the same study, foreclosed homes in Illinois had an average discount of 40% over non-distressed real estate.
Let’s plug these percentages into some actual sales scenarios, to see just how much you might save if you buy a foreclosure home. At the national level, foreclosed properties are selling at an average discount of 27%. We learned that from the data collected by RealtyTrac. Here’s how it translates into actual dollar amounts…
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.
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Why Foreclosed Homes Are Cheaper
The biggest selling point of a foreclosed home is, of course, its marked-down priceoften significantly lower than similar properties in the same area .
Most foreclosures are sold at a sizable discount from , with the exact amount varying from region to region. The seller may offer additional incentives such as a reduced down payment, lower interest rate, or the elimination of appraisal fees and some closing costs.
What makes these properties such a deal? If the residence is in the pre-foreclosure or short-sale stage, its owners are in a financial bind, and time is not on their side. They have to unload the property and get what they can while they can before they lose possession of it.
In short, these sellers arent negotiating from a position of strength and, while it may seem cruel to take advantage of their misfortune, a buyer can benefit.
The buyer can benefit even more if the property has been seized. The sheriffs office isnt interested in hanging onto a house, and banks dont want to be in the landlord business. Financial institutions typically want to rid themselves of foreclosed properties promptly. They need to get a reasonable price they have to answer to their investors and auditors. Still, buyers have an edge.
You should know that foreclosed homes are usually sold as is. If theres damage, repairs by the owner arent part of the equationbut, as used-car and vintage furniture aficionados know, as is translates into a discount.
Risks And Rewards Of Buying A Foreclosed Home
The amount of risk and potential reward of buying a foreclosed home can vary depending on which part of the foreclosure process the home is in.
First, lets cover some of the risks of investing in a foreclosed home:
- Theres a lot of competition to buy a foreclosure. Real estate investors, for instance, often bid cash for a foreclosed home to operate as an income property with no contingencies and no questions asked.
- The condition of a foreclosure home isnt disclosed or guaranteed. Unlike buying a home listed on the MLS by a real estate agent, the bank isnt required to disclose anything about the property to a buyer. Thats why its important to learn as much as possible about the house before you bid.
- Buying a foreclosed home doesnt always make sense. Just because a home is being sold at a foreclosure auction doesnt necessarily mean its a good deal. Some foreclosure homes have been completely trashed by the previous owner and require major repairs like new roofs or heating and air conditioning systems.
However, theres an upside to everything. Some of the rewards of buying a foreclosed home include:
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Renovate Repair And Move Into The Home
Once you finalize the logistics to buy a foreclosure, its time for the work to begin. Many foreclosed properties require extensive repairs to get up to code as the previous homeowners typically leave a few presents for the institution that foreclosed on them. Plus, many foreclosed homes sit empty for a long period of time because of either their condition or because of how slow the bank is at moving forward with a new buyer.
The work that needs to be done can range from electrical upgrades and plumbing repairs to full-scale roof replacements and foundation work. Your inspection should uncover most of the work that needs to be done. Once youre finished with fixing up your foreclosed home, its time to move in.
Submit A Competitive Offer
Work with your agent to submit a competitive offer. Remember that you may have some tough competition depending on how good the deal is and that it can take a long time to close on the deal. One tactic is to submit multiple offers on foreclosed properties to better your odds of one being approved.
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How To Find Foreclosed Homes For Sale
Finding foreclosures can be rewarding, yielding diamonds in the rough or real-estate fortunes sold below market value. Here are some ways to find foreclosed homes.
Hud Home: Best For House
When a home originally financed with a loan from the Federal Housing Administration gets foreclosed, the Department of Housing and Urban Development puts it up for sale through an appointed agent.
HUD homes are perfect if you plan to finance your purchase with a government-funded loan, such as FHA, VA, or USDA loans. Theyre not a great option for investors, as HUD gives a 30-day priority to everyday home buyers before opening the listing to all.
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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.
How Do You Buy A Foreclosed Home
The two common ways of buying a foreclosed home are through a real estate agent or through a public auction.
There are many factors to consider when buying a foreclosed home compared to a traditional home purchase. REO properties are an affordable housing option, but there are also more things to watch for with this type of home purchase. Use this guide to better understand the steps involved in buying a foreclosed home and to increase your likelihood of success in finding one that is right for you.
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Figure Out Your Financing
If you are paying cash, you can buy a house at auction. Otherwise, with a mortgage, youll probably be limited to a preforeclosure or an REO sale. But before considering either path, youll want to take steps to get preapproved for a mortgage loan. Once you have that in your pocket, youll be more likely to be taken seriously by a seller.
Be aware that many lenders wont offer to fund properties in foreclosure. The main reason is the house may not pass an inspection, says Andy Kolodgie, founder of The House Guys operating in Washington DC. A good option to finance foreclosed properties is with 203 loans from the Federal Housing Administration.
This option helps buyers finance a foreclosed property plus any required repairs into a single mortgage. To cover basic repairs, buyers can borrow up to $35,000 on top of the mortgage amount, explains Kolodgie. That means one loan and one closing. Your down payment will be based on the total value of the loan, and because repair costs are included in the loan amount, youll want to budget for higher monthly payments.
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.
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Search Thousands Of Houses Land And Apartments For Sale
Foreclosure.com researches, complies and lists the largest selection of cheap homes for sale throughout America, many of them for under $100,000 and very often for much less.
We can help you find the cheap house for sale on the block and buy the cheapest house in the best neighborhood with our nationwide database of the best real estate deals available right now. What about cheap houses for rent near me, we have them as well. Whether its foreclosed homes for sale, short sale homes, houses for sale near me by owner , bank-owned homes or any similar distressed property, we have the money-saving real estate opportunity thats right for you. And we make it so simple to find the cheapest house prices in your area: It’s one easy search on Foreclosure.com!
Where should you live in the US? Where you will be most happy and comfortable, of course! But, sometimes that isnt always possible because of family, jobs, health and, of course, money. At Foreclosure.com, we strive to take the sting out of an otherwise expensive and complicated home buying process. Its always important to save however and whenever you can if possible. And its no different when it comes to buying a house. Indeed, you can buy a cheap house and fix it up. You can buy a cheap house and renovate it. You can even buy a cheap house in your area that you find on Foreclosure.com that is a turnkey home.
We have something for everyone with our nationwide list of cheap properties for sale.
Real Estate Owned Properties
Real Estate Owned properties are sold by banks and lenders in the real estate market. These homes have already been auctioned but were not sold. Since the lender is unable to sell the property, they retain ownership and attempt to instead sell the property directly to home buyers.
Banks and lenders will typically hire REO agents that sell the properties to regular real estate agents. You can submit purchase offers directly to a bank or lender, which will typically take a long time and the home might be more expensive. But with this option, you take on much less risk because you can arrange for a home inspection and appraisal before purchasing the property. If you are unhappy with the results, you can choose not to buy the home.
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