Home buyers interested in buying a foreclosure must prepare themselves for a difficult journey. Unlike traditional home buying, foreclosures are often fraught with issues the new homeowner must resolve. Even though you will be getting a deal on a home by buying a foreclosure, the home and the process are more volatile and prone to complications. Be prepared to write many offers before finding the right home. If you are ready to buy a foreclosure, the following 5 steps will help you be better prepared to buy a foreclosed home.
Step One: Pre-approval
Getting pre-approved by a lender is even more important for buying a foreclosure than in traditional home buying. Because homes are foreclosed upon when the owner can no longer make the monthly mortgage payment, the bank or person selling it want to ensure that you, the new owner, will be able to afford the monthly payments. The lender that pre-approves you for a loan will provide the seller with that security. Keep in mind that if you a buy a foreclosure from a bank, they are not required, and probably don’t want, to finance your purchase of their listing.
Step Two: Foreclosed Homes Search
Searching for a foreclosed house for sale can have a huge pay off – if you’re patient. Have your First Team buyer’s agent search the MLS and other online portals for foreclosures. When you notice one listing agent’s name coming up repeatedly, have your agent contact the listing agent about other foreclosure listings she may have. This gives you an opportunity to get access to foreclosure properties before they hit the MLS. Great deals on the MLS go quick, so once it shows up your window of opportunity is small.
Step Three: Submitting Offers
Be prepared to write a lot of offers before having one accepted. Buying a foreclosure is a competitive business. House flippers and contractors buy these homes, fix them up and resell them, and they often pay all cash. When bidding on foreclosures, check how long they’ve been on the market. If a property has been sitting for a long time relative to the comparables, it is probably safe to offer a low bid. But, if the home just hit the market and you’re ready to own it, make an offer of the highest amount you’re willing to spend up to the listing price. It is frustrating to miss out on the home you want because you were trying to save 5,000 dollars. Be prepared to be patient as you face many rejections until one of your offers is finally accepted.
Step Four: Securing Your Investment
Before you exchange money for the foreclosed property, it’s extremely important you have inspections done and secure title insurance. Oftentimes, foreclosures have major damage to the house, the foundation or the land. These problem contribute to the low cost of foreclosures but could leave you with repair bills outside your budget. Paying for an inspection before closing escrow, or finalizing the purchase, will help prevent you from buying a project you’re not prepared for. If there is damage beyond your ability to fix, walk away. There will be others.
Once you find the perfect house, title insurance will help protect your ownership of the home. Aside from physical damage to the home, foreclosures can come with a lot of legal baggage, such as the home was collateral for the previous owner’s debt or was unlawfully foreclosed upon. Title insurance protects your ownership as a good-faith buyer. While this insurance is important for all real estate purchases, it is especially important for foreclosure purchases where liens, or claims on the property, surface post-purchase.
Step Five: Ownership
Now that you own the house, you will have repairs to attend to. If you did the proper inspections, you should know exactly what problems face you. Now comes the time to turn your bargain real estate into a home your neighbors will envy. Those home buyers that bought a foreclosure from anywhere besides a bank may have to evict a past owner, renters, or even squatters. Make sure you enlist the help of your agent or an attorney. Due to the circumstances surrounding foreclosure, the people you have to evict may not be cooperative, and, in some cases, are dangerous. Even if the home is empty, be cautious when entering, disgruntled and displaced past owners could have purposely damaged and vandalized the home or made it somehow unsafe.
Finding the property you want and closing escrow is an exhilarating feeling. The search is over; you got a great bargain for a great home. As you now know, buying a foreclosure is not for the faint of heart. The circumstances that put the property on the market leave it in a condition that is going to cost you time and money to restore the home to its past glory. For patient home buyers, finding a bargain on a dream home makes dealing with the tangle of buying a foreclosure worth it.
Make sure you discuss your options with your real estate agent before making any decisions. Your agent is a great resource for finding foreclosure listings, inspectors, and contractors as well as a lender. If you are looking for a buyer’s agent to help you through the process of buying a foreclosure, contact a First Team office near you to find buyer’s agents ready to help you.