Definition of foreclosed home: a foreclosed home is a residential property for which the owner is unable to pay the mortgage. As a result, the bank/lender repossesses the ownership of the property and put on for sale. For those looking for foreclosures but don’t know how to buy foreclosed homes, here is the whole shebang, give it a solid read.
How To Buy Foreclosed Homes – Steps To Buying A Foreclosed Home:
When buying a foreclosed home, keeping the following tips in mind would help you get the best deal possible.
Get In Touch With A Realty Broker And A Lender:
Since the ownership of a foreclosure belongs to a bank, find a broker who works directly with a bank that own foreclosures.
The best way to find a broker is visiting a website that contains the database of foreclosures.
Get Pre-Approval For Mortgage:
Unless you have saved enough to pay in cash, you will need a mortgage pre-approval from a lender. The approval comes in the form letter.
The letter describes your financial limits and provides an estimate as to how much money you can borrow.
No Definite Rules To Determine A Price:
There are no definite rules to set the price. It all depends on the recent sales prices of the similar properties.
When buying a foreclosed home, you will often experience that some banks put extremely low prices, which, as a result, attract a huge number customers.
On the other hand, when the market prices are high, the number of buyers is understandably low.
Do Not Expect Any Repair Discounts:
Before you head out and buy a foreclosed home, remember that no repair funds are available. The homes are sold as-is.
Let’s say a home is listed for $300,000.00. A client is interested in the house but wants extra $20,000.00 to do paints, change the carpets or make some repairs, will he get the compensation? Absolutely not!
The foreclosed homes are sold as-is, and no extra fund are available to fix the damage or make renovationsare available to fix the damage or make renovations
Don’t let a small price tag make you fall in love with the house. Before making up your mind, ask yourself the following questions:
- Do I have enough money for the substantial repairs
- If you plan on renting the property, do you have the budget to last for a few months in case you fail to find a renter?
Doing your homework before buying a foreclosed property puts you at a little risk
See The House Personally:
Do not buy a foreclosed home without personally seeing it. The damages at the property can be huge, and you don’t want to spend all your savings on the annoying repairs.
How Long Has The Property Been Empty?
The longer the period, the more damage there is. If a home has been vacant for a few months, a long list of ailments starts settling in.
The plumbing system starts to rust, the sewer bugs get into the house, and the entire property is engulfed by an awful stink due to the lack of air passage
Conduct A Private Inspection:
One of the most significant tips on how to buy foreclosed homes is getting the house inspection. These properties are often without caretakers, which often leads the conditions to change dramatically.
The vandalism at the property, stolen cabinets and copper pipes are few to name.
Conducting private inspection may prevent further damages. A home inspector will be able to specify the flaws so that repairs can be done in advance.
The cost of hiring a home inspector falls between $300-$500.
How To Buy A Foreclosure With No Money Down?
Are you looking to buy a foreclosed house but have no money to put down? Do not give up. With the right approach, you may still fulfill your dream.
There are numerous ways for buying a foreclosure with no money down.
This may not sound preferable to most the buyers out there, but if it’s your only option, take a deep breath and go ahead with it.
Here are some of the ways that can assist you with buying a foreclosed property with no money.
Start With FHA Foreclosed Properties:
FHA foreclosed properties are different than other properties since you need very little to no money down.
Using A Credit Card:
No cash? No problem. Use your credit card to buy a foreclosed house. Although using a credit card to buy a home is not hugely recommended because of high-interest rates, it can be pretty handy if that’s the only option you have.
However, before going with the credit card method, make sure you are comfortable with the interest rates and can repay the credit as quickly as possible.
Use FHA Loan:
For the first time home buyers, FHA loan is the way to go. The borrowers may qualify for the loan for zero down payments. But there is a little twist in the rules. If the home does qualify to be considered a fixer-upper, (in need of major repairs), then you won’t be approved for the loan.
How To Buy Foreclosed Home From A Bank?
Buying a foreclosure from a bank is good practice. However, not many have a clear idea as to how to buy foreclosed homes from a bank. If you are keen on buying a foreclosed property from a bank, here is a list of 5 key questions to ask before signing the purchase contract
How Long Has The Foreclosure Been On The Market?
Foreclosures don’t last long on the market. A property in the promising neighborhood is often bought quickly – just around 30 days – by the real estate investors.
However, if you want a property in an exiguous neighborhood, expect a longer market time. Buying a foreclosed home in a subpar neighborhood may lead to an increased flexibility on price. Subpar neighborhood may lead to an increased flexibility on price.
This is because the banks hate having a property on their hands for more than three months, or 90 days and they are always ready to negotiate with a right buyer.
How much are you paying per Sq Ft?
Calculating the price per square foot is a great way to determine your home’s value.
To calculate the per sq ft price, check out the per sq ft price of homes that were sold in the same neighborhood in the last two/three months. Then multiply the livable area of your home to work out your home’s worth.
For example, if the per square foot price of a 1,500 sq ft home is $75, then the home price, on the whole, would be $112,500.00.
Are You Going To Pay In Cash Or Mortgage?
Making the payment in cash for buying a foreclosed property is considered to be the unbeatable practice.
A buyer with cash payment is more likely to get the house than someone paying through mortgages.
Let’s say, if you are paying $80,000.00 in cash on a $100,000.00 house, you will be considered more qualified against a buyer who is only willing to put 20% down and pay the rest in mortgages.
How Many Foreclosed Homes Are In The Area?
The more foreclosed homes in the area, the more drop in the value of the property. The scenario often scares away the potential buyers.For an accurate number of foreclosures in your area, do a quick search on trusted websites like Zillow or Trulia.
How Much Money Will Be Left After The Purchase?
After the initial purchase, you may still need to spend a lot of money on renovations to finally make the house meet your standards.
Some extra costs that may come with buying a foreclosed property may include property tax, furniture, appliances, repairs, real-estate/mortgage fees, etc.
For all these expenses, have at least 15-20 percent extra money tucked away, so you have cash on hand in case of emergency.
What Happens During A Foreclosure?
The foreclosure process differs in each state. And in each state, there are two main primary types of foreclosures – judicial foreclosure and non-judicial foreclosure.
In this scenario, the lender files a lawsuit against the borrower. The entire process is handled by the court.
The judicial foreclosure can then be further be categorized into two types – strict foreclosure, and foreclosure by sale.
In a foreclosure by sale, the home is auctioned, and a buyer with the highest bid gets to keep the home.
In a strict foreclosure, the court sets a date for the owner to pay the mortgage. If the owner fails to do so, the court will ultimately award the lender with the ownership of the foreclosure.
This type of foreclosure involves no court proceedings. A lender can advertise and sell the property at public auctions without any legal obligations. All he has to do is to follow a procedure specified by the local state.
Can I Get A Mortgage On A Foreclosed Home?
There are several mortgage programs available on foreclosed homes. FHA, VA and conventional are to name a few.
If foreclosed home is in perfect condition, then you may apply for FHA/VA. However, if the home needs repairs, then conventional loans are your only option since FHA and VA require the home to be in perfect condition.then conventional loans are your only option since FHA and VA require the home to be in perfect condition.
What Are The Requirements For Buying A Foreclosed Property With Bad Credit?
A credit score is a three-digit number that reflects the odds of you paying back the credit. To determine a credit score, the lenders look at the credit history of a borrower. A score that falls anywhere between 620-800 is considered to be good.paying back the credit. To determine a credit score, the lenders look at the credit history of a borrower. A score that falls anywhere between 620-800 is considered to be good.
However, if you are with a bad credit score and struggling to figure out how to buy foreclosed homes with bad credit, there is only one way to do it: real estate auction.
A real estate auction is just like any other auction where you just pay the money and get the item.
At these auctions, no credit scores are involved since you’d be paying cash for the property.
On the other hand, if a buyer lacks the money to put down on the auction, then the mortgage is the only option. But the mortgage lenders require a credit score of 620 or above. Anyone with a lower CS would struggle to qualify for the loan.
If a borrower is lucky enough, his lender may tone down the rules, but the odds of this happening are incredibly small.
What Is The Process Of Buying A Foreclosed Home At Auction?
If your credit score is bad and the lenders are refusing to approve you for the loan, the only option left is buying a foreclosed house at auction. But before taking this route, beware of the potential pitfalls and key points of these auctions.
Learn How The Foreclosed Property Wound Up At Auction:
A real estate auction is where the buyers bid for a property. The auctions are conducted due to the non-payment of mortgage for more than 60 days.
Before putting the foreclosure at auction, the lenders send several notices to the homeowners. If the homeowner fails to come up with a payment plan or work out the terms with the lenders, the bank will then send a final letter, informing the borrower that the property will be up for auction in 3 weeks, or 21 days to be precise.
The Mortgage Pre-Approval Is The Key:
In case you are wondering how to buy foreclosed homes at auction, get pre-approved for the loan.
When you seek a mortgage approval, the lender goes through your credit history, income, debts and assets. If all seems to be in order, he issues a letter stating you have been approved for the mortgage.
The letter serves as proof that you have enough available to purchase the property.
Bring Cash To The Auction:
At the auction, the trustee sets the bidding price and determines the lowest price limit for each property.
The price may include the fees of associate lawyers, loan balance, etc. So before heading to the auction, bring cash or cashier’s check in case your bid is accepted.
What Are The Pros And Cons Of Buying A Foreclosure?
Now you know everything about how to buy a foreclosed homes and the ups and downs that may come during the process.
Here is a list of advantages and disadvantages that come with buying a foreclosed home.
Advantages Of Buying A Foreclosure:
- The seller often wants a fast sale, creating an opportunity for you get the property at below market rates.
- The seller will be more likely to do the repairs.
- The buyers can use mortgage financing
- It’s mandatory for the seller to provide the buyer with complete details of property’s condition, repairs and other problems.
- The buyer can conduct all the inspections during contingency period
- If you are buying a foreclosed home at auction, the cash payments will reduce the competition.
- If you are buying a bank-owned property, the bank will be willing to negotiate the purchase price, down payments, closing costs, etc.
- The property will be vacant
Disadvantages Of Buying A Foreclosed Home:
Every story has two sides and buying foreclosed properties is no different. With advantages come disadvantages.
Here is a look at the major disadvantages that may come with buying a foreclosed home.
- The seller may only be able to negotiate the price as low as his outstanding mortgage.
- The lender may not approve your offer.
- The closing process may stretch up to 90 days
- If you are buying a foreclosed property at auction, you may have to pay the cash on the same day as the auction
- The properties are sold as-is
- The buyer must pay all the commission’s or attorney’s fees.
- If you are buying a bank owned house, they will not agree to do the repairs
- The banks require extra paperwork
- The banks do not provide disclosures on the history/condition of the house.
Cutting It Short – Is Buying A Foreclosure Good Idea?
Buying a foreclosed home may or may not be a good idea, depending on the situation of a buyer. Many foreclosures could prove to be a great deal as they are available at lower rates and are located in a great neighborhood.
However, some properties are overly distressed, and the banks won’t provide any disclosures on their history.
So it’s important for a buyer to spend some time in the neighborhood, get to know the property and then come up with the final.
The Bottom Line:
These are some of the tips on how to buy foreclosed homes and whether buying a foreclosure is a good idea or bad idea.
In the end, it all comes down to the financial condition and personal interests of a buyer.
If a buyer is looking for a property that is available for lower rates and can become livable with small repairs, then it’s a great decision. Otherwise, buying a traditional home should be your top priority.