Foreclosure is a home that’s seized and put up for sale by the bank that gave the original owner a loan. When you see a home listed as “foreclosed,” it means that it’s owned by the bank. Every mortgage contract has a “lien” on your property. A lien allows your bank to take control of your property if you stop making your mortgage payments.
Common reasons for foreclosures:
Lower prices: One undeniable benefit is that they almost always cost less than other homes in the area. This is because they’re priced by the lender, who can only make a profit if the home gets sold.
Fewer title concerns: Buying a home from a homeowner means you may not get a clean title, which is the legal right to own a property. A homeowner might have back taxes due or liens on the home that may force you to cancel the sale. When you buy a foreclosed home, you don’t need to worry about title concerns because the bank clears the title for you.
Standard loan configurations: You might have to follow a slightly different bidding and buying process when you buy a foreclosure, but you still have a few loan options. You can get a VA loan, FHA loan or USDA loan to buy it as long as the home you’re considering is in livable condition. These government-backed loans can make homeownership more affordable.
Renovation potential: In most cases, banks aren’t willing to make repairs and renovations before selling a foreclosure. However, there’s no rule that says a bank can’ttake care of repairs for you. If you happen upon a home that’s been on the market for a long time, you might be able to convince the bank to make repairs before you move in.
Buying a foreclosed home is riskier than buying a home that’s owner-occupied. Some of the drawbacks to buying a foreclosed property include:
Increased maintenance concerns: Homeowners have no incentive to maintain the home’s condition when they know they’re going to lose their property to foreclosure. If something breaks, the homeowner won’t spend money to fix it and the problem could get worse over time. Homeowners may even destroy the property intentionally. You’re responsible for fixing whatever problems the home may have when you buy a foreclosed home.
As-is sales: The bank’s main concern is recouping their money as quickly as possible, which means an as-is sale in almost every instance. You shouldn’t buy a foreclosed home if you don’t have a significant amount of cash to invest in repairs.
Auctions: A bank might decide that the best course of action is to sell a home at a sheriff’s auction. In that case, you may need to pay the full final bidding price before you can take control of the deed. You typically cannot get a mortgage loan for a home that you buy at an auction because underwriting and appraisals take too much time.
Periods of redemption: Just because a home is labeled as “in foreclosure” on a real estate listing site doesn’t mean that home will ever go up for sale. Almost every state affords a period of redemption to homeowners in which they can earn their home back by catching up on their bills. In some states, homeowners may have up to 12 months to take back control of their property.
Squatter’s right: A home might be legally foreclosed, but it doesn’t mean that there’s no one living on the property. Many foreclosed homes sit unoccupied for months or years at a time, which could attract squatters. If you buy a property with a squatter living in it, you need to legally evict them even if the person or people in question have no claim to the home. This can take months and cost thousands of dollars in attorney fees.
Think that buying a foreclosure is right for you? Here are the steps you can take to buy a home in foreclosure:
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.
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.
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.
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.
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.