Considering foreclosed properties can be a great way to land a house at a much lower price, but a housing foreclosure is not for the squeamish. They often need a lot of work and the paperwork is a hassle. Knowing the important things can help you buy a home and get to the closing table. The difference between types of foreclosure units is important; these range from pre-foreclosure or short sale, auction properties, bank-owned or REO homes and government-owned houses. Each has distinct processes for purchasing, and it’s wise to know those before you start looking.
Short Sales and Pre-Foreclosures
Homeowners with money troubles often look to sell their home so they don’t lose it, and this can be a win-win situation for everyone involved. The homeowner gets out from under the mortgage, the buyer gets a house at a bargain price, and the bank note is satisfied. Though short sales are not slam dunks, lenders typically are willing to negotiate because they will net far higher sums than if they allow the home to be sold at the courthouse. Another plus for buyers is that they can preview the home and see the exact condition.
Foreclosed homes are typically sold at public auction at the local courthouse. These are posted online prior to the date of the auction, along with their minimum prices and the terms that you need to comply with. You can buy a home for considerably less than market value at a courthouse auction, but there is no way to look at the interior. While you can do a drive by and see the exterior condition, there still can be significant surprises. Additionally, there may be tenants or stubborn occupants to remove from the premises, as well as unpaid taxes or liens. For this reason, keep bids on the very low end.
Bank-Owned or REO Properties
Every direct mortgage lender has a real estate owned (REO) department; their job is to maximize the return the lender receives when a buyer defaults. This is typically a great way to buy a foreclosure. It’s already gone through the courthouse procedures, any occupants or tenants are gone and you can get inside to give it a thorough going over. Eager banks will negotiate prices on bank-owned properties, especially after they have held them for a few months. So, get a good idea of the repairs needed, make a reasonable offer and they likely will accept rather quickly.
Homes owned by Housing and Urban Development (HUD), the Federal Housing Administration (FHA) and the Veteran’s Administration (VA) are defaulted homes that the government had guaranteed. These foreclosures can often be easier to buy because the government has special programs to help buyers purchase and rehab them. Additionally, FHA loans are lenient with buyer credit since it is their mission to help citizens buy a home. Like REOs, you’ll be able to look these over well so that you can see the work required.
Tips for Buying Foreclosures
- Get Preapproved. The best foreclosure properties will sell fast. When you find a good one, you must make an offer immediately, so having your money lined up is imperative. Many lenders are available, from traditional banks to hard money and private lenders for houses that need lots of work.
- Be ready to get to work. As mentioned previously, foreclosed properties often need repairs and upgrades. If you’re handy, great, but if not, make sure you have a good handyman lined up to assist with the work that needs to be done on your bargain buy home. Additionally, figure in costs for labor and materials needed to spiff your new place up.
Ready to start looking for your “diamond in the rough” foreclosure home? Check out ClassifiedAds.com, where you will find hundreds of new listings daily.