Buying a Foreclosed Home at a Price Reduction Compared to Other Comparable Properties
A foreclosed home is normally listed at market price when it hits the market. Lenders do not want to give a foreclosed property away. As time passes, the lender may instruct the listing agent to lower the market price. The days of foreclosed homes selling at a huge price reduction are long gone.
Homebuyers need to make sure there are benefits when buying a foreclosed home. One of the main benefits is buying it at a discount. Many homes that have been foreclosed may need gut rehab or major renovations.
There may be many hidden issues with electricity, plumbing, well, septic, or other major renovations that may be required. Foreclosed homes are homes that the previous homeowner defaulted on their mortgage. The lender had to legally obtain the property due to the homeowner defaulting on their mortgage payments.
The Process of Buying a Foreclosed Home
In this paragraph, we will discuss how to purchase a foreclosed home. Buying a home that has been foreclosed is similar to purchasing a regular home. The property owner is the lienholder, normally a bank or lender. There are various stages of the foreclosure process.
Buyers should first determine what stage of the foreclosure the home is in. Ensure you study the market value of comparable homes before offering a foreclosed home.
Get an estimate on the cost of the renovations needed to make the home appealing or marketable. There are many instances where buying a foreclosed home does not make sense. Many buyers must compete with professional real estate investors with cash to purchase. There may be dozens of bidders on homes that are in foreclosure. There are also risks involved with buying a foreclosed home.
Frequently Asked Questions When Buying Foreclosed Homes
Some questions need to be answered: Has the property been fully foreclosed? Was the property sold at a sheriff’s sale? Are there people living in the home like squatters? Is the property in pre-foreclosure, meaning the lender notified and served the homeowner of the impending foreclosure? Is the homeowner trying to sell the property before the lender finalizes the foreclosure? Is the property a short sale?
One thing homebuyers need to know about buying a short-sale home is it takes substantially longer than a regular home purchase transaction.
A short sale is when a lender is willing to accept a discount on the mortgage balance. This is because the property’s value is lower than the home’s market value. A short sale home purchase may take four to eight months to close.
Seller of Foreclosure Properties
Buyers should know who the owner of the record is when buying a foreclosure home. Some homes are bank-owned properties. Bank-owned properties are also referred to as REOs. If a property goes to a sheriff’s sale and does not sell to a winning bidder, the property will become a real estate-owned property.
Real estate-owned properties mean the lender owns if a homeowner defaults on a federal government-back mortgage such as FHA, VA, or USDA loan.
The government owns the home’s property if the borrower defaults on their government loan. The government agency is the agency that owns the home and is responsible for selling it through real estate agents. Regular home transactions only take 30 to 45 days. Every step of the short sale home purchase process needs lender approval.
Hiring an Experienced Real Estate Agent To Represent You
It is best recommended that you hire a local experienced realtor knowledgeable not just with foreclosure homes but also the area. A local veteran, experienced real estate agent who knows the area is key when buying a foreclosed home. The chances are they will know other realtors in the area.
Your realtor will guide you on how much your offer should be. The realtor will also get you a market analysis of the area.
Your real estate agent can also refer you to a local contractor who may estimate how much it will cost to renovate the home. Make sure you get the home inspected thoroughly. If you plan to finance the foreclosed home, the property needs to pass home appraisal. If you need an appraisal, ensure the property will pass the basics before entering into a home purchase contract. Hire an experienced, reputable home inspector.
Pros and Cons In Purchasing a Foreclosure
The biggest pro in buying a foreclosed home is buying it at a large discount. Buying a foreclosure is no different than buying a standard home. One of the negatives is a lot of competition. You may be competing with cash buyers. If you are buying a short-sale home, the process can take months. Most foreclosed homes will need repairs. However, buying a foreclosed home can be rewarding because of getting it at a lower price.