Everyone loves a good deal, so, buying a foreclosed home can earn you an amazing deal with no stress at all. This works more than engaging the traditional owner of the property. The attention of a buyer is often drawn to foreclosed homes because of the low price.
Buying a foreclosed home for first-time homebuyers would leave them with a bigger house than what they ever expected and could ever afford. However, it is important to have firsthand information on the things you should know about buying a foreclosed home – this would make you be able to differentiate between a foreclosed home and other forms of properties.
What Is A Foreclosure?
Foreclosure is an occurrence whereby a lender collects a property from an owner who has defaulted on their mortgage payments. However, the lender would try as much as possible to get back their investment by putting the property up for sale at a price lower than its actual value.
What this implies is that a buyer is getting the home below the market value because the bank wants to get it sold as quickly as possible to recoup their investment.
What Are The Types Of Foreclosures?
Judicial (legal) Foreclosure: This type of foreclosure is allowed in all states. Here, the lender files a lawsuit against the borrower requesting payment on the mortgage. So, if the owner does not repay, does not appear in court, or does not have a defense, a judgment is granted to the lawyer. The borrower is given time to pay and redeem the property, if he fails, an auction process to sell the property is commenced.
Non-judicial Foreclosure (power of sale): Here, a court is not required to handle the process. Notices are being sent out to the homeowner pending the end of the waiting period. So, the mortgage company holds a public auction without the assistance of a sheriff or the court.
Strict Foreclosure: This is permitted only in a few states. Here, the lender files a lawsuit once the lender is permitted to do so under the law. Besides, this is usually done after the homeowner has defaulted on a loan. Once foreclosed and the homeowner is unable to pay at the stipulated time, the mortgage holder becomes the owner while the property is put up-sale immediately.
The Steps To Buying A Foreclosed Home?
Get a specialized agent in foreclosure – Find an agent who has an in-depth understanding of the foreclosure processes to represent you and keep the transaction going. A secret to doing this is going online to find a database of homes in your area of choice.
Expert realtors with specialization in real estate should be hired. Look out for realtors with qualifications in Short Sales and Foreclosure Resource (SFR) or Certified Distressed Property Expert (CDPE). Besides, buyers can work with the real estate agents who represent the bank rather than the buyer’s agent – this helps you save on the commission.
However, in buying a foreclosed home, there is a need to tell your agent to look for foreclosed homes that meet your criteria.
Be ready with your pre approval letter – Getting your pre approval letter ready is essential except you can afford to pay cash. In this letter, the details of the amount you can borrow are stated depending on the lender’s assessment of your income and credit score.
It is essential to have a lender that has a good understanding of your goal; they will help you get the necessary things done to obtain a preapproval letter.
Compare property prices before making an offer – Your agent should assist with running a comparative market analysis (CMA) that makes you understand the current prices of foreclosed properties. In carrying out a comparative market analysis, factors like history of tax assessment, and pace of home sales should be considered.
Go for the highly-priced foreclosure if the others are selling quickly – If foreclosed properties are selling fast in your area, there is a need to come up with a strong offer in addition to your already prepared preapproval letter. Since foreclosed properties are already discounted, any offer that is too low might not be interesting to the bank.
The type of home and location might help a house to sell faster, however, offer a higher price if there are multiple bids and allow contingencies to be kept at a minimum.
You must be ready to buy a home in “as is” condition – A foreclosed home is often sold at the “as is” state which means the seller won’t be able to ascertain the home’s condition like structural issues, presence of termites, and some others.
There is no possibility of fixing the property since it is owned by the bank. So, get a home inspection officer to know what you are exactly going for. The agent would help identify issues with the property. With this, you can decide whether to go on or walk away if a home inspection contingency is included in the contract terms.
Two Ways Of Buying A Foreclosed Home
The two ways of buying a foreclosed home are;
Firstly, if the homeowner fails in the payment of their mortgages, lenders can auction off the property. They are sold at a public auction. The other way of buying a foreclosed home is the way that works for most people who are not professionals in the real estate investment sector. It involves buying a property after the bank takes over its ownership. These properties are sold by accredited agents and can be acquired just the same way you buy the traditional properties.
Buying a foreclosed home is a personal decision. So, factors like your risk tolerance and potential reward, your finances, and the ability to move quickly are other things to consider before making an offer. If this property is priced well, you could make big savings on the property. Also, note that this type of listing should not be discounted in your home search.