Why Buying a Home from Foreclosure May Be Your Best Choice as a Home Buyer
The housing market is cyclical and is currently gradually recovering from the 2008 property collapse. The number of foreclosed properties is less than a few years ago, but there are still opportunities to buy a foreclosure at a respectable price.
I don’t know what you’re doing, don’t buy
Buying a property in foreclosure is not for those who have not studied the foreclosure process as thoroughly as possible. prior to buy foreclosure (also known as real estate, REO, bank owned). Study the information available online, take community college courses, and attend seminars on investing in foreclosures.
Line up your financing ducks
The next step toward buying foreclosure is developing a detailed budget. Determine the absolute maximum you are willing to spend, including mortgages, property taxes, and insurance. Include some funds for possible repairs.
Next, look for REOs in your real estate market of interest.
Many homes in foreclosure need at least some rehabilitation. How much are you willing to spend on repairs? Are you planning to work up a sweat or will you need to hire a contractor and crew to get the job done?
Now look at your budget and make a list of what you can afford for a down payment and security deposit. Will you have to ask for a mortgage loan?
Having the financing lined up prior to bidding in foreclosure tells the selling financial institution that you are a serious buyer. Please note that most REOs require this information along with your bid.
Be prepared to stick to your budget and if the deal doesn’t fall below your limit, be prepared to walk away.
Some REOs are priced above market value. Find out what similar properties are selling for in the area. Various online real estate organizations list “add-ons” for the property you are interested in, as well as similar properties.
The REO bank generally does not offer disclosure on a repossessed property. Some houses are in terrible condition, even uninhabitable. DO NOT consider, much less bid, a foreclosure without first having a full inspection of the property by a licensed inspector. And be very careful with any property that is priced significantly below market value. It may be hiding some serious problems.
Don’t go it alone – work with a real estate agent who has a lot of experience with foreclosure.
The good deal
A good deal on an REO property is one that needs little or no restoration. Or, it could be the rehab property that fits your budget and financing well.
A stronger deal is one that you can pay cash for. Be prepared to act quickly. The bidding war for desirable property can be common. Do not reduce your offer. Get it clean, cash (if possible), with little or no contingency, and a quick close.
The best bet on a foreclosed property is the one you prepared for, even before you start your search.