Knowing how to buy a foreclosed home can be a great potential savings. While you generally cannot buy a foreclosed home for pennies on the dollar (despite what some late night television commercials would have you believe) you can buy a foreclosed home for approximately 30 to 40 percent below market value.
How to Buy a Foreclosed Home
While many foreclosed homes may be a great deal, some are money pits that should be avoided at all costs. Therefore, it is essential to know how to buy a foreclosed home the right way before getting started.
There are several steps to knowing how to buy a foreclosed home. In addition to knowing where to look, you also need to know when and how to make an offer should you find the property of your dreams.
Get Pre-Approved or Guarantee Financing
If you are buying a foreclosed home from a bank or from an auction, payment may be due immediately or within a very small window of time. Furthermore, many services which sell foreclosures will be more willing to sell to buyers who can close the deal quickly, or even who have cash in hand. It can be a great idea to get approved for a mortgage loan or secure your financing early so you will know exactly how much to spend and so you can be ready to put the money on the table when it comes time to buying the home.
Find Your Home
There are a number of different places you can look to find the ideal foreclosed home to buy. Online websites such as Foreclosures.com can provide you with a listing of foreclosures in your area. You can also check HUD auctions, FHA auctions, VA auctions and other auctions for foreclosure listings. Your local newspaper can alert you to upcoming real estate auctions, or you can speak to a real estate lender in your area. Finally, try local banks, bankruptcy attorneys, or even the County Clerk's office to find out what homes are at or near foreclosure in your area.
Many banks have relationships with specific real estate agents, and you may need to work with an agent in order to find a property to buy. You can find an agent by looking at "real estate owned" (bank owned) properties and seeing who the agent is. If one or more names keeps popping up as the agent associated with REO properties, chances are that agent would be a good agent to work with.
Foreclosures can be a great deal or a terrible deal. Once you have located a home you are interested in, you want to do as much research as you can to determine whether you should go through with the purchase. In some cases, you may be able to inspect the home or have an inspector or appraiser look at it. In others, this won't be permitted. If you can, definitely invest in the professional inspection. Otherwise, at least do a drive-by inspection to identify any obvious problems.
Foreclosure homes, which are sold "as-is," may also come with tax liens, construction liens, or other such liens that the new buyer may get stuck with upon purchasing the property. In some cases, you may even have to pay back taxes owed on the property, which can amount to many thousands of dollars. Invest in a title search or check your local county clerks or records office to do as much research as you can in order to find out whether the house comes encumbered with any of these problems that you will have to resolve.
Make an Offer
In some cases, you can make an offer directly to the bank or place a bid yourself at an auction. In other instances, only authorized agents can actually make the offer to buy the home. Regardless, it is usually a good idea to have an agent or broker to help ensure you are following the myriad local and federal laws associated with buying a foreclosure. An agent can also help you to decide on a fair price to offer for the foreclosure you are interested in buying.
Deciding to Buy a Foreclosed Property
Once you know how to buy a foreclosure, you will need to determine if this is the right decision for you. This depends on your personal goals; if you want to buy the foreclosed home to live in, the calculations you need to take will be different then if you are buying the home as an investment. Make sure you consider your situation carefully before acting and weigh all the pros and cons, instead of just focusing on whether you think you are getting a deal.