Foreclosure is a situation in which a homeowner is unable to make mortgage payments as required, which allows the lender to seize the property, evict the homeowner and sell the home, as stipulated in the mortgage contract. When you see a home listed as “foreclosed,” it means that it’s owned by the bank. Every mortgage contract has a “lien” on a property. A lien allows the bank to take control of the property if the homeowner stops making mortgage payments.
Buying a foreclosed home is a little different than buying a standard property owned by a homeowner. Most foreclosures are sold as-is, which means that you can’t negotiate with the bank to make repairs for you.
Step 1: Determine Who You’ll Purchase The Property Through.
There are three ways to buy a home in foreclosure: from the homeowner, from the bank or at an auction. Purchase From A Homeowner or Short Sale; Purchase from A Bank; Purchase at Auction.
Step 2: Work With A Real Estate Agent To Facilitate The Purchase.
Most banks hand foreclosed properties off to a real estate owned (REO) agent who works with standard real estate agents to find a buyer. Not every real estate agent has experience working with REO agents. An experienced foreclosure agent can help you navigate your state’s REO buying process, negotiate your price, order an inspection and make an offer. Research real estate agents in your area and look for an agent who specializes in foreclosure sales.
Step 3: Get Approved For A Mortgage To Finance Your Purchase.
Unless you buy a home at a foreclosure auction, you’ll probably obtain a mortgage to fund your home purchase. Once you’ve found an agent and you get started looking at homes, you’ll want to get preapproved for a loan. A preapproval lets you know how much you can get in a home loan. Choose a lender and apply for a mortgage preapproval to narrow your search.
Step 4: Conduct An Appraisal And Inspection On The Property.
Inspections and appraisals are both crucial when it comes to buying a foreclosure. An appraisal is a lender requirement that lets you know how much money a property is worth. Lenders require appraisals before they offer home loans because they need to know that they aren’t lending you too much money.
Step 5: Purchase Your New Home
Read your inspection and appraisal results and decide if the home in question is really right for you and whether you’re okay with buying a home as-is. Contact your mortgage lender to finalize your loan if you have the money or skills to make any needed renovations. Your real estate agent will help you submit your offer and prepare you for closing.
A foreclosure is a home that’s under the control of a bank. People foreclose on their homes when they can no longer make their payments. In most cases, foreclosed homes are much cheaper than other homes in the area, and you can sometimes find a good deal. However, these homes also often have severe damage and structural issues and are usually sold as-is.