Have you ever considered purchasing a foreclosed home? Some even consider a foreclosed home as a diamond in the rough at a price you can afford. It’s important to be sure of what you’re looking for and how to shop for foreclosed property.
Foreclosed properties are regarded as nonperforming assets, hence banks and lending institutions that control them are actively marketing them in every way they can. One method is to offer discounted sales to potential homebuyers and investors, which is why foreclosed homes are sold for less than their actual market value.
What is Foreclosure?
A foreclosure happens when a home is seized and put up for sale by the lender. If you see a home listed as foreclosed, it means the lender owns it. Every mortgage arrangement includes a lien on your property. If you fail to make your mortgage payments, your lender can seize control of your home. Foreclosures are often the result of a homeowner’s inability to keep up with their mortgage payments.
Understanding more about Foreclosure
When a mortgage borrower fails to make their loan payments, the lender has the authority to seize the home and resell it in order to repay (or at least lessen) their financial losses. Typically mortgage issuers put foreclosed properties up for auction, which often results in the residence being sold for less than market value. When homes fail to sell at auction, lenders may reduce the asking price and sell them privately.
Because foreclosures are often terrific bargains, they are popular among real estate investors who want to use them as rental properties or flip them for a quick profit. Competing with these investors, many of whom have access to substantial amounts of credit and can make hefty down payments or even buy properties outright for cash, can be difficult for first-time homebuyers.
If this means you are not completely out of the running for a foreclosure purchase then you need to compete with the investors. And to do that you must first lay the groundwork to demonstrate your ability to close the deal. You’ll also need to be careful and decisive when selecting a property that you won’t have much time to evaluate before making an offer.
Working with a real estate professional who has foreclosure experience can help you fully understand what you’re getting into with a foreclosure purchase. The Short Sale and Foreclosure Resource (SFR) certification from the National Association of Realtors identifies agents who have received training in this area.
It’s also crucial to understand to realize that foreclosure normally follows a timeframe, and that purchase options and procedures vary at each stage of the process. The duration of each stage in the timeline may vary depending on circumstances and state or local laws, but they normally occur in the following order:
Short sale: A short sale happens instead of going through with a foreclosure where a lender agrees with a homeowner to sell their house for less than what they owe on their mortgage, as long as they agree to give the lender the full proceeds of the sale. (Lenders often act in this way after concluding that the expense of pursuing foreclosure will be less than their loss on the sale.)
Auction: Foreclosure auctions are open to the public and may be announced on the websites of the county, city, or other municipality that conducts the auctions. The rules and requirements vary by jurisdiction, but foreclosed properties are always auctioned off in as-is condition, with the seller accepting no responsibility for maintenance, repairs, property damage or financial encumbrances such as unpaid lines.
Properties advertised for auction sales may or may not be available for inspection beforehand, although they are normally listed far enough in advance for a title search to be performed. Some countries enable buyers to back out of an auction sale (after a title search or inspection, or for any reason) by forfeiting a cash deposit, but in other jurisdictions, auction sales are final, and getting out of one will be costly, if feasible at all.
Real estate-owned (REO): An REO property is one that has been foreclosed on and is now offered for purchase directly from the lender. Most of the time, these are properties that did not sell at public auctions, but residences are occasionally available for purchase on a REO basis before going to auction. REO homes are sometimes offered on lenders’ websites, but they are rarely advertised or publicized, and can only be purchased with the assistance of a licensed real estate professional.
Helpful Tips for Buying Foreclosed Properties
Choosing foreclosed properties has many benefits. Although their low prices are appealing, not all foreclosures are excellent deals. But with these tips to buy foreclosed properties you will be able to spot and score a diamond in a sea of foreclosed properties.
-
Know Where to Look
To find foreclosed properties, visit banks, lending institutions, SPAV companies (companies formed under the Special Purpose Vehicle Act of 2002 to assist banks in shedding nonperforming assets), and government financial institutions such as the Social Security System (SSS), Home Development Mutual Fund (Pag-IBIG Fund), and National Housing Authority (NHA).
Furthermore, banks and financial institutions maintain a list of accredited brokers and brokerages who assist them in marketing and selling their foreclosed assets. You can find the best property deals by visiting their websites.
-
Get Your Financing Ready
As with any competition, having an advantage over other purchasers can increase your chances of obtaining the foreclosed home you desire. You will be more appealing to sellers if you have already been prequalified for a home loan by a bank or financial institution. They will know you are a creditworthy and serious buyer with a pre-approved home loan that you can use at any moment. As a result, you will have more negotiating leverage compared to other buyers. Furthermore, getting pre-approved allows you to stay to a budget.
-
Work with a Bank or Accredited Broker or Bank
Foreclosed properties are sold “as-is, where-is,” thus as a buyer, due diligence is essential. But this is easier said than done, especially if you have ma0ny homes to inspect, not to mention documentation and titles to verify. Working through a bank or its accredited broker/brokerage, on the other hand, considerably decreases the risk of ending up with problematic property.
-
Hire A Real Estate Agent
Most lenders assign foreclosed properties to a REO agent, who collaborates with standard real estate brokers to find a buyer.
Not every real estate agent has worked with REO agents. A qualified foreclosure agent may assist you in searching for foreclosures, navigating your state’s REO purchasing process, negotiating your price, ordering an inspection, and making an offer. Investigate real estate agents in your region and make contact with one that specializes in foreclosure sales.
-
Attend Property Auctions
Property auctions, which are typically conducted by banks or real estate brokerages, are an excellent way to find foreclosed properties that are not regularly featured on property portals. Attending auctions also allows you to speak with an agent in person to properly discuss your purchase, seek their opinion, and take you through the buying process.
-
Have Some Cash to Spare
The best foreclosures create bidding battles, particularly at auctions. And, in order to have a decent chance of purchasing the property you want, you must be prepared to make an appealing offer and negotiate the payment conditions. Buyers that have a down payment ready on the spot usually win these bidding battles, and the seller may even provide a substantial discount.
-
Inspect the Property
Foreclosures are usually sold “as is, where is,” so schedule an inspection as soon as possible. Remember, these are previously owned houses, so don’t expect them to be in perfect condition, though the majority of those up for auction may simply require minor repairs. Experienced real estate investors or flippers would advise investing in a foreclosed property that can be repaired in 30 days or less. This allows them to sell, lease, or move into the property quickly while avoiding further holding costs.
-
Consider Your Location Carefully
The profitability of any property is heavily influenced by its location. If the property is in a high-growth area or one that is developing into one, chances are it will gain in value. Foreclosures near transportation infrastructure, such as expressways, airports, and even new townships, are similarly affected.
-
Deliberate on Your Offer
Determine the market worth of comparable homes in the area of the house you are bidding on to verify that you are not overpaying. Do extra due research and investigate how quickly comparable properties sell if you intend to sell or lease the property as soon as you purchase it. You would benefit from a quick sale because it will save you money on maintenance, security, and taxes.
-
Know Your Fees and Taxes
Aside from the down payment and the selling price of the property, the buyer must also pay fees and taxes. For example, buyers must pay notarial fees, registration fees, transfer tax, and documentary stamps tax, and if purchasing a condo or townhouse unit, the buyer must additionally pay monthly association dues.
Purchasing foreclosed houses involves a significant amount of time, patience, and due diligence. However, so does the acquisition of any form of real estate, foreclosed or not. Obtaining a quality property at a low cost, on the other hand, should be more than enough motivation and reward for your efforts.
Purchase Your New Home Right Away!
Read your inspection and appraisal results before deciding whether the home is truly suited for you and whether you’re willing to buy a home or not. If you have the funds or skills to undertake any necessary changes, contact your mortgage lender to finish your loan. Your real estate agent will assist you in submitting your offer and preparing for the closing.
