In the past years, as many home owners fell behind their mortgage payments, a lot of foreclosed homes appeared on the market.
There are some advantages with buying them (a better price and most of them are already vacant) and also disadvantages (there’s little room for negotiation, they are not always in top condition and you have to really move fast).
If you decide to buy a foreclosed home, here are some tips:
Get a preapproval letter from a lender
Many people make the mistake of starting to look for a foreclosed home and only afterwards thinking about financing the purchase.
Unless you have the money to pay cash, find a lender to sign you a preapproval letter. This helps you in 2 ways, you are ready to make an offer as soon as you found your ideal home and it also gives you a very clear budget.
If your bank approved you for a $300,000 purchase, you won’t waste time looking for more expensive homes, unless you find more money to finance the loan.
Find a real estate broker dealing with foreclosures
There are real estate brokers who closely work with the banks selling these foreclosed homes, so make sure you find one.
You can also look for sites listing foreclosures and filter these results. If you see the REO acronym on these listings, know this means Real Estate Owned – the property has been foreclosed and is now sold by the lender.
As soon as you found a realtor dealing with foreclosures asks about the listings that might come up, because it takes a while for them to appear in the database, but you might find a hidden gem there as well.
Having been preapproved for the loan gives you an edge, because many wait until they find an ideal foreclosed home to get a lender.
Don’t expect the bank who’s selling the home to come up with a deal for you, many are just looking to get rid of a property that’s losing them money and will see your mortgage as a separate deal.
Not to mention that, in case a home is really ‘hot’, it will sell within hours, so there’s no time for you to get financing afterwards.
With a preapproval letter in your hands, the seller will take you more seriously and you can also make an offer as soon as you saw a good deal.
Don’t try to get too much of a deal
If similar homes in the are sold for $200,000, for instance, don’t think the bank will accept too much of a discount. Especially if the house hasn’t stayed on the market for too long.
Always look for ‘comps’, before coming with an offer. This means looking at recent sales of comparable properties.
If the home is priced lower than the usual asking price in the area, the home will have multiple offers within hours.
Of course, things are different with a foreclosed home that’s been on the market for months, for instance.
Know the area housing prices and history and you’ll be able to get a good deal fast.
A foreclosed home comes as-is
It means that you are most likely to support all the repairs needed to move in, so budget for them as well.
Thinking the bank will drop the price for you to cover these expenses is not such a great idea, especially if other properties in the are sold for that price.
If all sell for $200,000, don’t expect the bank to accept $180,000 just so that you can pay your repairs. In the meantime another home buyer could offer the asking price and get the house from under your nose.
You need to think well about that property and how much you want to have it, then bid accordingly.
Know someone who is good with constructions and repairs, so that you can get some good advice.
Some homes appear to be in excellent shape, but have big issues (plumbing, electricity etc.). Others don’t look too well (maybe they need a new coat of paint), but have the ‘basics’ in top condition.
This is why having someone knowledgeable helps you a lot.
A well trained eye can see if a house will need extensive and expensive repairs or if you’ll just need small fixes.
Whatever you choose to do, prepare yourself for all this grind. Get experts by your side and get your prepapproval letter ready. This way you can buy a foreclosed home sooner.