3 key facts to know before buying a foreclosure

Published On 2017-02-22
3 key facts to know before buying a foreclosure

If you are ready to settle down and build up your own nest but low on budget maybe considering a foreclosure property is your solution. Even though foreclosed properties sell for less and might end up being the real deal you should be aware of these 3 key points when it comes to investing in one of them.

Know the process

There are two scenarios to purchase a foreclosed home. Lenders auction off properties after the owner stops paying the mortgages. These homes are sold at public auctions which can be quite complicated. From trying to outbid professional real estate investors and buying a property that you cannot tour in advance to paying with cash it might be a real hassle.

In other cases a bank takes ownership of the property and a buyer gets it directly from them. Most of the bank-owned homes are listed and sold by real estate agents. These are the so called REO’s - real-estate owned. In this case the process looks very similar to buying a normal place. Since the bank has paid senior liens like back taxes, there is no need of kicking out someone. However, these types of foreclosures are sometimes with a lot to repair as the bank will not do that for you before the sale.

Know the owner and the place

Unfortunately, if the owner still inhabits the place this might mean you have to watch out for two things - either you have to be in charge of evicting him or in some cases they might vandalize the place. This leads us to the most vital aspect of the whole process - make sure you know well what is the condition of the property you are going to invest in. Some foreclosed homes come with so much damage that the repair costs an arm and a leg. Prepare yourself to spend extra in any case. You can always try and negotiate especially if the house has been on the market for quite some time.

Align all your ducks in a row

Before diving into the deep waters of foreclosure properties make sure you have sorted out a few things. Do your own research, using a good database with reliable tools and information about the foreclosed properties. Get a letter of prequalification from a lender as soon as possible. Don’t wait for a bank loan in the last minute as no seller would prefer working with an insecure buyer. What is more, even though your finances might be sorted out you still might not be able to get the place. The foreclosure appraisal, which determines  the size of the loan you, can get can be quite low due to vandalism or neglect that may had caused damage.

To sum up, buying a foreclosure might be challenging. However, if you make sure you follow those basic steps you will definitely find your way around it.