These days, it is all too common for people to default on their mortgages—the homes are now owned by the bank and they want to unload them to recoup as much as they can on a defaulted loan. Foreclosed homes can be a great deal, whether you are looking for a place to call your own or for investment properties. But, there are lots of potential downfalls and this is a venture where you must tread very carefully. Failure to do so can be costly, and not just in terms of money. Here are some important considerations for buying a home in foreclosure.
Where to Start
When it comes to purchasing a foreclosed home, there are three paths to take. First, you can try and buy the house from the owner before the bank officially forecloses. Second, you can try to bid on a house at an auction, but you will have some stiff competition in the form of seasoned investors. The third, and probably best option, is searching the listings for REO(real estate owned) homes. By hopping on websites that list foreclosed properties, you can see what is available in your area, and more importantly, find an agent who can help you. Most banks tend to use one or a handful of agents to specifically handle these properties, and this is who you want to touch base with.
Little Room for Negotiation
Most foreclosed properties are going to be sold ‘’as is’’ and pricing will be based on what similar homes were sold for in the area. This means that you have virtually no room for negotiating a price. While you may be able to knock money off the asking price for a regular house due to any repairs you may need to make, it does not work that way with foreclosed homes. It is expected that they will need repairs—sometimes extensive—and that they may have been purposefully damaged and stripped bare by the previous owner. Unless a house has been sitting on the market for awhile, you should bid the highest possible price you are willing to pay right from the start. This is especially the case if the type of house you are bidding on happens to be a fast moving product.
Get a Thorough Inspection
Just like a regular sale, you are able to get the property inspected before finalizing your purchase. Because you are buying the house ‘’as is’’ and are really not able to knock down the price to compensate for repairs, it is vital you have as clear a picture as you can about the state of the house. While a foreclosure offers the opportunity to buy a house at a steep discount, extensive problems can quickly cancel out any savings or fail to make up for the aggravation. Inspections are also important because there will be no disclosure with a foreclosed property—you are buying right from the bank, not a previous owner, so no one to tell you about any problems the house may have. If the property was bought in the last five years, the agent may be able to get their hands on a past disclosure report, which can shed some light on the condition of the house.
Have Financing Lined Up
Because the competition for foreclosed homes can be stiff and the properties can get sold very quickly, it is a good idea to have financing lined up before you begin your search. You should apply for a loan and get that pre-approval letter in hand first thing.
Kelli Cooper is a freelance writer who covers all things real estate.