Foreclosed homes are a hot commodity in the real estate market since they make for excellent investor opportunities. They are also great for prospective homebuyers in search of a new place of residence at a reasonable price. However, buying and managing foreclosure properties differs a bit from regular real estate transactions.
What is a Foreclosed Home?
Before we discuss buying foreclosure properties, it’s important to define exactly what they are. A property is foreclosed after a bank or other creditor repossesses it if the borrower of the mortgage can no longer make payments. Foreclosed properties are also knows as real estate owned (REO) or bank-owned properties.
How to Buy Foreclosure Properties
Determine What You can Afford
Before looking at foreclosed homes, it’s important to figure out how much money you can spend comfortably. Getting preapproved for a mortgage will help you understand how much money a bank will actually lend you before you start falling in love with homes out of your price range.
What Happens after a Home is Foreclosed?
After a property is repossessed by a bank, it is placed on a public foreclosure auction. During these auctions, the bank will sell the property to the highest bidder. There is a considerable amount of risk involved in public foreclosure auctions, however, because buyers cannot always inspect a property before they bid on it.
If a property doesn’t sell during an auction, it will be listed for sale in the same way residential real estate is typically listed.
The Property Search
The search for foreclosed homes is similar to that of a regular real estate hunt. Newspapers and online real estate websites will have foreclosed homes listed. However, you should also search bank and government websites, since they are often the agents by which foreclosed properties are reclaimed.
Invest in an Inspection
Banks don’t have any firsthand knowledge of REO properties prior to repossessing them. They also don’t maintain foreclosed homes after acquisition. Homes that are unoccupied and unmaintained for long periods of time are subject to deterioration. Because of this, banks are often unable to verify a property’s condition or complete a Seller’s Disclosure. Most REO homes are sold “as is,” which means repair costs become the responsibility of the buyer.
It’s necessary to have a licensed home inspector evaluate a property’s condition before you buy it. Research the costs of any repairs you will have to make, and factor them in on top of your new mortgage payment.
Find the Right Agent
It goes without saying that finding the right realtor is helpful in every kind of real estate transaction. But it’s especially important when it comes to foreclosure properties since the process is more complicated. Make sure the realtor you choose has prior experience with REO properties. A knowledgeable agent will be able guide you through complex paperwork and determine if you’re getting a good property deal.
Only after you’ve thoroughly researched your options should you decide whether or not buying a foreclosed home is right for you.
