Buying a Foreclosed Home: Is that the Right Decision?
A foreclosure occurs when the homeowner cannot keep up with mortgage payments. The lender can sell the house to recoup his investment. The bank claims the property. However, they are not in the business of keeping homes. Ultimately, the loss mitigation department will have to sell the house. Lenders can sell a house in a foreclosure auction, or they can keep the property as “bank-owned” and sell it later in the retail market.
The bank is looking for a fair price for the property so they can recover their loss. It is possible to acquire a foreclosure property for a reasonable price. The house might require a makeover, but it can be a deal that you couldn’t find elsewhere. Foreclosure investing is a popular strategy for many real estate investors. Investors get properties at a deep discount. Later on, they sell the house after renovation.
The question is, should you invest in a foreclosure property? Is it the right choice for you? The answer depends on the situation. This article will highlight the features of a foreclosure sale.
Foreclosure properties are not listed on the MLS. You don’t find these listings unless advertised by a bank, and when that happens, it is late to purchase the property. Many investors buy a house in the pre-foreclosure phase. It is the time before foreclosure when the homeowner is struggling with mortgage payments, but cannot find a solution.
Investors reach out to the homeowners and offer them a helping hand by purchasing their home as-is. The homeowner can avoid foreclosure. They get the funds to pay off their mortgage, and the investor finds an affordable property.
How to Find Foreclosure Properties?
You can find foreclosure listings on newspaper legal notices and the bank website. Certified ads can provide you with information, but the listings can be outdated.
How to Purchase a Foreclosure Property at an Auction?
Have you ever been to a real estate auction? Auctions follow a formal procedure. Attend local sales to see how the process works. Most of the time, you’ll need to submit a $5,000 check to show your serious interest. You may need to offer 10% of the winning bid on the auction date to claim the property.
Distressed homes are sold as-is. You are buying a house at a discount, but you are also assuming a risk. Ask a certified inspector to look over the property before you make an offer. Repairing a house can cost you money and time. If the home requires structural repairs, then it’s not wise to purchase the property. Potential maintenance and holding costs will minimize your profit from the deal.
It’s also wise to work with a title company to ensure there are no title issues with the property. The most important part is to arrange finances for the house. Are you going to pay cash for the property?
Beware, because most banks are not willing to lend money for a property that requires repairs. Foreclosed homes are neglected by their owners and often are in rough shape. You can get private money loans to finance the house. However, private-loans come with high interest-rates, and it can be challenging to get such loans.
Last, but not least, be patient. Banks are not in a hurry to sell the house. It can take months to acquire a bank-owned property even if you are paying cash.
Contact us to help you make the right decision.