How To Buy Foreclosures In New Jersey
How to buy pre-foreclosures | How to buy properties at auction | How to buy REOs | How to buy HUD homes | Summary | FAQs
Whether youâre a flipper, homeowner, or investor, foreclosed homes in New Jersey offer a compelling option for finding undervalued properties.
Historically, New Jersey has consistently had one of the highest foreclosure rates in the nation. Although this has unfortunate implications for many homeowners who are falling behind on payments, it does create an opportunity for someone new âmaybe you â to take over those homes.
However, buying foreclosures can be significantly more complicated than conventional homes. Itâs imperative that you learn about the process and work with a team of professionals if youâre just getting started.
This guide will tell you everything you need to know to get started finding, evaluating, and buying a New Jersey foreclosure.
Find An Experienced Real Estate Agent
Foreclosures can be difficult to find and price, so try to work with a real estate agent that specializes in them. An agent who is knowledgeable about the foreclosure process can represent your interests and keep the transaction moving. One strategy for finding the right agent is to visit websites with a database of foreclosed homes in your desired area. Look for Realtors who have specialized real estate training in this area, such as the Certified Distressed Property Expert or the Short Sales and Foreclosure Resource designations.
Buyers can also work directly with the banks real estate agent instead of using a buyers agent to save on the commission split. This can be a risk, though: Buyers feel more secure when they are represented, Soffee says.
Your agent can guide you through various types of distressed sales. These include:
- Preforeclosures, in which a buyer bails out a seller before the bank takes the property
- Short sales, in which the borrower owes more than the home is worth and the bank agrees to forgive some of the debt
- Public auctions, in which bidders have a chance to make offers on foreclosed properties at the local courthouse
- Bank-owned homes, which belong to the lender
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.
» MORE:Mortgage preapproval vs. prequalification
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Pros And Cons Of Buying A Texas Foreclosure
The primary benefit of buying a foreclosed home at any stage is the discounted price you expect to get. Buyers also appreciate the increased inventory to choose from and the possibility of quickly gaining equity by renovating the property.
The major risks are damage to the property or title issues, but there are also some legal issues buyers should be wary of.
Buying A Home In Preforeclosure
With all this in mind, you can potentially buy a house that is in preforeclosure. As long as the homeowner is in default and is still the homes owner, they can decide whether or not they want to list the house. And they sometimes do.
Also, your agent may have become aware likely through checking county records of notices of default of a home that isnt listed for sale but is in preforeclosure. This can give you the opportunity to submit an unsolicited offer.
Sometimes homeowners in default welcome such offers. They might be looking for a way to get out from under their mortgage payment. Your offer to buy it could be their way out.
Theres no guarantee, however. Some defaulted borrowers will consider an unsolicited offer to be an unwelcome distraction from their effort to catch up on missed payments or otherwise settle the matter with their lender. For instance, a deed-in-lieu-of-foreclosure agreement lets the homeowner avoid foreclosure, and the resulting hit on his or her credit, by simply handing over the home.
Another possible wrinkle is that the balance on the loan might be more than the house is worth. If thats whats going on, it would be sold as a short sale. The lender has to agree to a short sale, even if you and the seller agree on a price. If the lender doesnt like the offer, they can and will reject it. Either way, it could take months for the lender to give the offer the thumbs-up or thumbs-down.
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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 to eligible participants.
Make A Competitive Purchase Offer
If the home is in pre-foreclosure, your real estate agent will need to present the offer to the individual who currently owns the home.
If youre looking at a foreclosed home thats headed to auction, youll need to contact the trustee or attorney whos running the auction to ask any questions about the house before the auction takes place.
A trustee is a third party who runs a foreclosure auction on behalf of a lender or government agency. This official accepts the bids during an auction.
If the house is REO, your agent will present your offer directly to the banks listing agent.
A buyers agent will never have direct contact with the bank. The process is similar for government-owned listings: Your real estate agent will again present your offer directly to the government agency listing the home.
You might be tempted to make a low offer on a foreclosed home. Its true that foreclosed properties often sell for less than traditional homes. But if you make an offer thats too far below , the sellers might reject it.
Its important, then, to work with your real estate agent to make a competitive offer. Your agent will advise you on what this figure should be.
You should also include a contingency for a home inspection in your offer. This contingency says that the home sale cant be finalized until youve scheduled a home inspection of the property.
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Get An Inspection And Appraisal
Because the property may not have been well taken care of, its strongly recommended that you get a home inspection. A professional inspector will flag any problems with the homes structure or major appliance systems. If there are large issues thatd be expensive to fix, youll have to weigh the cost of repairs with the savings youre getting from purchasing a foreclosed home. A home appraisal will provide you and your future lender with a professional estimate of the homes value.
A Note About Purchasing Through Short Sale
A short sale occurs when the homeowner sells a home for less than what they owe on the mortgage because the value has declined. Foreclosure has not been completed with a home up for short sale. The homeowner still owns the home so you work through their REALTOR®.
When you buy a home in a short sale, the lender needs to approve your offer. You might spend a lot of time waiting for approval.
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Always Get A Home Inspection
Foreclosures are sold as is, but you still need to know exactly what the deficiencies in the property are. The seller should enable you to bring in a competent home inspector, which you will have to pay for out of pocket.
Like a preliminary appraisal, it will be money well spent. You need the inspector to give you a detailed list of everything thats wrong with the property, as well as a breakdown of how much it will cost in order to complete the renovations. This will help you know if the property is actually profitable, or if its likely to turn into a money pit.
Get Preapproved For A Mortgage
Unless you buy a home at a foreclosure auction, youll probably get a mortgage to fund your home purchase. Once youve found an agent and you get started looking at homes, youll want to get preapproved for a loan. A preapproval lets you know how much you can get in a home loan. Choose a lender and apply for a mortgage preapproval to narrow your search.
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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 foundation, 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.
An Overview Of The Foreclosure Process
Before discussing foreclosure purchases, I need to explain the foreclosure process, in general. Understanding this process provides insight into how investors can purchase these homes with no money.
When you take out a mortgage loan, the home you purchase acts as collateral for that loan. Whether primary residence or investment property loan, the property itself serves as a collateral. And, the fact that home mortgages are secured loans plays a huge role in why borrowers can get such low interest rates.
Simply put, collateral reduces risk to lenders, because if the borrower stops paying or defaults on the loan the bank can seize the collateral. They can then sell it on the open market and recoup all or a portion of the outstanding loan balance. On the other hand, take a look at the interest rate your credit card offers on a cash advance. This is a form of unsecured loan . And, youll likely see double digit interest rates due to the increased risk for lenders in providing these loans.
Banks call this process of seizing the collateral of a borrower who has stopped paying foreclosure. And, it typically follows these steps:
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Conduct Due Diligence On The Property
Arguably the most important thing to do with foreclosures is get the property inspected and conduct a title search. Since foreclosures only exist when bills are not being paid, there is additional risk of claims against the title.
Conducting a title search will ensure that there are no liens against the property, so you can rest assured that the home is yours once you’ve closed on it.
Inspections will help you avoid major issues in the property that may be hard to see with a simple walk-through.
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With auctions, inspections and property viewings are generally not allowed. Your due diligence will be mostly limited to checking for a clear title, driving by the property to assess the condition of the outside and neighborhood, and preparing to makean offer at the auction.
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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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.
Buying A Home At A Foreclosure Auction
Planning on bidding at a foreclosure auction for the first time? Here’s how you can prepare.
Foreclosure auctions conducted on courthouse steps, in convention centers across the country and, increasingly, online can be intimidating. The trick to avoiding foreclosure auction pitfalls is to do your homework.
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Tips For Your Home Search
- Buying a home is a massive investment, and a financial advisor can help you fit it into your long-term plans.
- Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
- If youre planning to buy a foreclosure by using a specialized government loan, such as a VA loan, FHA loan or USDA loan, make sure you do your research before you dive into the foreclosure market. Government loans come with certain housing standards to meet. That means you wont be able to get just any foreclosed home. In general, itll have to be in relatively decent shape.
- Before you even start the home hunt, its important to know how much house you can afford. Starting the house search with a number in mind can help keep your expectations in order.
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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Hire A Real Estate Agent
Most lenders hand foreclosed properties off to an REOagent who works with standard real estate agents to find a buyer.
Not every real estate agent has experience working with REO agents. A qualified foreclosure agent can help you search for foreclosures, navigate your states REO buying process, negotiate your price, order an inspection and make an offer. Research real estate agents in your area and connect with an agent who specializes in foreclosure sales.
What Is A Foreclosed Home
A foreclosed home is a house that now belongs to a bank or mortgage lender instead of an individual homeowner. But banks dont just go around buying houses for fun. Lets take a look at how a foreclosure works.
Youve heard of the repo man? Hes the guy who comes and takes your car when you stop paying the bills. A foreclosure is the same conceptbut with houses. When a homeowner gets behind on their mortgage and cant make payments, the bank moves to take the property back.
This process can take anywhere from a couple of months to years, depending on the location . But the motive behind it is the same: A foreclosure allows the bank to repossess the house and sell it to try to get back some of the money they lost when the borrower stopped making their loan payments.
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