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.
Purchase Online Preforeclosure Leads
One of the most direct paths to buying a house in foreclosure is simply buying preforeclosure leads online. Some lead sources automatically send new leads to your inbox every day, which allows you to start marketing to leads immediately instead of spending hours or even days finding the lead before making contact.
Purchasing leads is an optimal choice for buyers or investors who have a significant amount of competition in their area. By using a lead source like REDX or Landvoice, new leads are delivered directly to your inbox on a daily basis, and you can immediately utilize the power dialer to make contact more quickly. Other platforms, like foreclosure.com and ArchAgent, have filtering capabilities and lead managers to sort through potential leads and follow up effectively.
Take a closer look at a few of the top preforeclosure lead sources:
Where Can I Find Listings For Bank
There are several ways to find bank-owned properties:
- MLS: Most lenders list their REO properties on the Multiple Listing Service , so any agent can help you identify REO offerings in your area.
- Bank websites: Some banks have an entire department set up to sell REOs, and sections of their websites are dedicated to their listings.
- Online specialists: Zillow has foreclosure listings for free. You can find foreclosure properties by using search filters on Zillows search and maps page. To find listings for bank-owned properties, enter your search area on Zillow, then click Listing Type and choose Foreclosures under the For Sale heading. Full foreclosure listing information is free after you register with a free account.
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Talk To Foreclosure Real Estate Agents
Sometimes it makes sense to hire a real estate professional that specializes in finding foreclosed homes. Their main specialty is their ability find foreclosures more easily than other agents. This is due to their experience with local real estate. And while any real estate agent should be able to point you in the right direction, its always best to work with an expert.
Determine How Much Home You Can Afford
Budgeting matters when buying a foreclosed home. Yes, you might be able to nab your new home at a lower price tag. But foreclosed homes arent free. And despite what you might have heard, you cant buy a foreclosed property for $1 either.
Youll need to craft a household budget listing your monthly income and expenses to determine how much of a mortgage payment you can afford each month.
If you dont do this, you might purchase a home you cant afford even if youre looking for a foreclosure. By purchasing a home thats out of your budget, youll struggle to make your own mortgage payment each month.
As with any home purchase, its important to predetermine your debt-to-income ratio. As the name suggests, this ratio analyzes how much of your gross monthly income your monthly expenses will consume.
Most lenders want your monthly debts to take up no more than 43% of your gross monthly income. If your debt-to-income ratio is higher than that, youll struggle to qualify for a home loan.
Be especially careful when buying a foreclosed home. You might be tempted to buy a foreclosure with a price tag thats at the very top of your budget.
The problem with this is that the foreclosed home might require expensive repairs. If youve purchased a home at the top of your budget, you might not have enough money to afford those needed repairs.
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Government Agencies And Other Options
Some government agencies require you to retain the services of a real estate broker to make an offer to purchase. Others will let you submit offers on your own.
- The U.S. Department of Housing and Urban Development provides a list of its foreclosure homes.
- The Federal National Mortgage Association lists foreclosure homes through its HomePath website.
- Department of the Treasury lists homes seized by the Internal Revenue Service.
Private-sector sources also are available to find foreclosure homes.
What Are The Benefits Of Foreclosure
The benefit of foreclosure for buyers is primarily the chance to buy a house at a reduced cost. It is also a faster process to close the transaction. These are compelling reasons why many buyers are interested in purchasing foreclosed properties.
There are also potential downsides to buying foreclosed properties. A large downside is that foreclosed properties usually do not get inspected, unlike a typical property sale. This means there could be unforeseen expenses that might be immediate or may be required further down the road. It also means there could be issues for VA borrowers.
It is important to consider that a loan might not be an option in purchasing a foreclosed property. This creates the possible drawback that a property might require a cash-only sale. It is not a viable option for many people to purchase a house outright in cash.
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Preforeclosure Leads: 8 Ways To Find Preforeclosure Listings
REVIEWED BY:Gina Baker
Gina is a licensed real estate salesperson, experienced trainer, and former high school educator of 1,000+ learners. She writes for Fit Small Business with a focus on real estate content.
Kaylee specializes in real estate, B2B, and SaaS companies. You can find her expertise in sales and real estate content on Fit Small Business.
This article is part of a larger series on Real Estate Lead Generation and Marketing.
When homeowners default on their mortgage payments, their property goes into preforeclosure. At this stage, they have a choice to keep the property, sell it, or conduct a short sale. This makes preforeclosures a valuable opportunity for real estate agents to gain a listing or for buyers and investors to purchase a home below market value. To find preforeclosure listings, you can purchase leads, search through the MLS and local directories, or generate referrals.
One of the most effective and time-saving ways to find preforeclosure leads , and expired leads) is with REDX. For $39.99 per month, REDX provides up-to-date preforeclosure property information in your county. It will include difficult to attain homeowner contact information and organize it in a database to give you a head start on the competition.
To start finding preforeclosure homes, try these eight methods:
Work With The Making Home Affordable Program
The Making Home Affordable program provides help, including free counselors for advice and assistance with keeping you in your home or getting out safely. Visit the MHA website to learn what options you have and what you need to prepare.
Your state’s housing agency might have a foreclosure avoidance program as well.
If you have an FHA loan, call the FHA National Servicing Center at .
Beware of mortgage relief scams. One sign of a scam is when they ask for a fee in advance. Learn how to spot housing scams and report housing scams.
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How Do I Find Foreclosed Homes In My Area Free
You may remember that during the Great Recession foreclosures were a big part of the housing bubble. As the economy cratered, foreclosure filings soared. In the first half of 2010 alone, 1.65 million U.S. homes spun into foreclosure, according to data from ATTOM Data Solutions, a real estate database provider. 10 years later, the COVID-19 pandemic leads to a rash of foreclosures once again. This could be a great opportunity for investors to build equity. If you are looking for foreclosed homes, there is a wide range of online and offline resources to find foreclosed homes, including most larger banks.
Pros And Cons Of Foreclosed Homes
Buying a foreclosed home can be both risky and profitable. The seller is in a hurry to sell off the property. Therefore, there is a high chance that the buyer can get it from his/her bargained price. Hence, the buyer will get the property which is lower than the said market price. Usually, there is less competition when it comes to foreclosed homes, which is a huge advantage for interested persons.
There are also cons to buying foreclosed homes. For one, usually, those home is not maintained well as the owner is in a financial bind. Also, one is only allowed to pay the seller with the said amount in cash unable to know about the history or condition of the house that is put up for sale. The buyer is buying the property under a condition. That is, they are solely responsible for the purchase, as they are not allowed to inspect before purchasing.
In most cases, the buyers are not given the chance to inspect the property. However, it is always wise to do a thorough research on the property intended for buying. As the house will be put up for sale in several website as responsible buyers, one should go through the reviews given thoroughly to get a hint about the condition of the home.
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Real Estate Agents Brokers And Property Services
Respres/flickr via Wikimedia Commons
The age of property agents being secretive about foreclosures, preforeclosures, distressed properties, and REOs is long gone. Nowadays, listing these types of properties is just another way to attract buyers. That’s why most real estate services now offer easy access to their databases of distressed properties, such as these:
- Realtor.comThe officially licensed home for the National Association of Realtors provides free access to its property search engine. Predefined filters pull out foreclosures, properties that have seen price reductions, and affordable homes in communities you search. You’ll also find recent news and insights about distressed properties.
- TruliaOffers a well-designed search system that includes a predefined filter for finding foreclosures in communities you search. To find foreclosures using Trulia, perform a basic search by town, then use the More search filter and select Foreclosures for the type of sales listing.
- ZillowHere, you’ll find a foreclosure center with access to advanced search capabilities using a number of criteria, including by cost , neighborhood, and more. Buying guides, FAQs, and even a guide for those who may be facing foreclosure round out Zillow’s offerings.
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Drive By The Property If Possible
This will let you see the homes conditionfrom the outside. Homes in the foreclosure process are usually occupied by the owner whos being foreclosed upon or a renter. Do not trespass or disturb the occupant! Doing so is a criminal offense.
When you bid on a foreclosure, youre bidding on the property as-is. You wont know what condition youll find inside once you take possession. Extra, unexpected repairs could cost you thousands of dollars, so take that into account when figuring out how much you can comfortably bid. Theres a saying among investors thats a pretty good rule of thumb: How it looks on the outside is what its going to look like on the inside. In other words, an unkempt exterior indicates an unkempt interior, while a home with great curb appeal will probably look similar inside!
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Get Preapproved For A Mortgage
Getting preapproved for a mortgage is a smart move no matter what type of home you buy. In the preapproval process, a lender will run your credit and verify your income and debt at no charge. This lender will then determine how much of a mortgage it can approve you for.
Once you get a preapproval letter from a lender, youll know exactly how much you can spend on a home. If a bank approves you for a mortgage of $200,000, you wont waste time looking at homes that cost $300,000.
Having a preapproval letter also makes you an attractive buyer. Sellers prefer working with buyers who they already know can qualify for a mortgage. They dont worry that you wont be able to get a loan, thus dashing their home sale. If multiple buyers put in bids on a home, sellers are more likely to work with buyers whove already been preapproved for a mortgage .
Banks and lenders can be particularly sensitive to credit issues in foreclosure situations, so a good will be especially important during the preapproval process.
The smart move is to shop around for mortgage lenders. Dont simply work with the first mortgage lender you find. Instead, search for the lender thatll give you the lowest interest rate and loan fees.
Your lender will want to make sure nothing has changed for you financially since you first earned your preapproval.
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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Best Premium Foreclosure Websites
Aside from the free options, it makes sense to review the best foreclosure website with a monthly subscription. Each real estate website listed below offer users more advanced search features and information for investors. If you are a real estate investor, you should definitely consider the foreclosure listing options on these premium sites.
Free Websites Listing Foreclosed Homes
Tamsen holds several years of experience in the mortgage industry, working as a mortgage loan officer, mortgage closer, and branch manager.
Learn about our Editorial Policy.
When perusing free websites for foreclosed homes, be sure that you don’t get convinced to enter a credit card number in order to fully access the database of the website. There are many sites available that charge nothing and offer accurate information, so there is no reason to pay to access the information you are looking for.
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Attend The Auction And Bid
Check-in at least one hour before the auctions start. Get an Auction Bidder Card and raise it when the auctioneer announces a price that youre prepared to accept as your winning bid.
If you win the auction, your payment is due immediately or the following business day . Once youve paid in full, youll complete a certificate of sale or an execution of sale receipt, deed upon sale and IRS Form 8300, subject to state-specific laws.
Where Can I Find Pre
To find possible pre-foreclosures in your area, enter your search area on Zillow, then click Listing Type and choose Pre-Foreclosure under the Potential Listings heading. Pre-foreclosure information is free after you register with a free account.
Be aware that a home listed under the pre-foreclosure category is a home that is not necessarily for sale. But, since the homeowner is in default on his loan, he may welcome an opportunity to find a qualified buyer who can help him avoid possible foreclosure. Also, the home could be scheduled for foreclosure auction under this category.
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How To Find Foreclosures In My Area For Free
Foreclosed properties that are owned by banks are often listed by the applicable bank on their websites, so this is a good place to start looking for foreclosures by filtering the search according to your area. Listings can be limited on these websites, so bear that in mind. If this is the case, you could also check Fannie Mae and Freddy Mac websites, as these websites often purchase mortgages from the banks.
The Department of Housing and Urban Development has foreclosed homes listed on their website, and this is another way to look for foreclosed homes in your area at no cost. These foreclosed homes are owned by the HUD. Real estate investors can find properties in distress on this website and make an offer via the agent listed on the property. The catch here is that homes are sold as is, and there will be no repairs or fixes made to any homes on the website.
Your county will have information on record for the houses that are foreclosed and some of this is also posted online. You can usually search for these using the applicable ZIP code, or provide the county office with the ZIP code and find further information there. There will usually be some sort of bidding procedure which youll need to follow for these properties.