Thinking of buying an exquisite dream home but frustrated by the rising home prices in your area? You might want to delve into the foreclosure market.
Currently, there are 583,941 properties in the US. that are in some stage of foreclosure. The same report shows that over 800,000 foreclosed homes are already listed for sale.
Astonishing, right? That means you’ll always find a foreclosed home that matches your standards.
If you’ve been mulling over how to get a foreclosed home at a great price, this post is for you. With the right information and an investment mindset, getting an affordable foreclosure shouldn’t be hard.
However, there are many pitfalls and a hasty buyer can end up in a quagmire. In this post, you’ll learn the 5 golden tips to get a foreclosed home at an excellent deal.
But first, a primer on foreclosures.
What Is a Foreclosure?
Foreclosure is what happens when a homeowner fails to pay a mortgage.
It is the action of taking possession of a mortgaged property when a homeowner defaults in making the mortgage payments. When that happens, the bank takes action and the owner forfeits all rights to the property.
A foreclosed home, also known as a real estate owned (REO) property, therefore, is property owned by the bank/lender as a result of the previous owner defaulting on the loan.
You may now ask, is it good to buy a foreclosed home? Are foreclosed homes cheaper? The answer is Yes and No.
To the savvy buyer, getting a foreclosure can be a once-in-a-lifetime opportunity to own a dream home at an ultra-low price. But to a hasty buyer, it can be worse than buying a car that turns out to be a lemon.
5 Tips on How to Get a Foreclosed Home That’s an Excellent Deal
Getting a good deal on a foreclosed home is not as easy as many have been made to believe. However, with the right information, you can make the process easier and get a home that’s up to your standards.
Here are the 5 golden tips on how to buy foreclosed homes cheap.
1. Budget Carefully
Proper budgeting is a critical factor to consider when determining the value of a foreclosed home.
Don’t let low price tags lure you into closing a deal. What purportedly seems low might prove to be very expensive in the future.
Take your time to evaluate the house and ask yourself a number of questions. Does the house require extensive repair? If so, do you have the money to cover the costs? Does the level of damages or depreciation justify the price?
Because if the previous owner was unable to meet the monthly mortgage payments, chances are that he/she might have neglected maintenance as well.
Therefore, before closing a foreclosure deal, add your estimated price of repair to the buying price of the house and you’ll know the actual price of the property. Then do your homework and find out what comparable homes in that area have recently sold for.
If you do your homework well, you’ll have fewer risks. You’ll also get a foreclosed home that matches your budget.
2. Inspect the Property Thoroughly
One of the marketing tricks that realtors often exploit is painting only the picturesque aspects of a property. Be careful not to fall for this trick, especially if you’re looking into buying a foreclosed home.
In most cases, real estate brokers will post only a few snaps of the property. By just looking at the snaps, you might miss important information about the listed property.
For example, you might not know the nature of the landscape in the backyard by just looking at the photos. If the house has been vacant for long, expect untrimmed trees and vines to add to the deterioration of the house.
Also, check to see if the house was winterized. A house that sits over the winter without being winterized could be messy and expensive to repair. It will require an in-depth inspection to determine the nature and extent of damages.
Damages such as clogged or broken pipes might not be easy to spot and are likely to happen if the house was not winterized.
3. Pay Cash, If Possible
Keep in mind that the property is listed because the previous owner defaulted on the loan. To that end, most if not all lenders will prefer cash transactions over bank financing.
Cash is king. Some lenders might even give bigger discounts if you purchase with cash.
Also, for buyers who need mortgages, it can take up to 60 days to close the deal once the offer is accepted.
A cash buyer who can finalize everything in less than 10 days can certainly get the best deal. And it’s possible to adjust the buying price by up to 10% if your purchase is not contingent upon bank financing.
As such, if you don’t have ready cash, you might want to consider borrowing from a friend or a relative and then repay back once your loan is approved. This can help you to close the deal faster and get justifiable discounts.
4. Study the Neighborhood
Your neighborhood is just as important as the house itself. The people, amenities, and things around you will affect the value of your home in future.
Therefore, your homework will not be complete if you don’t evaluate the neighborhood.
Ask yourself if you want to live near that mosque that will be waking you up every day at 3.00 am. Also, pay close attention to the published data on the crime rate in the area.
Because even if the house is in stellar condition, the cost can be more than you can bear if the neighborhood is characterized by high levels of violent crimes.
Also, look for amenities and other attractive things that might add value to your house and neighborhood.
5. Consider Buying a Title Insurance Policy
You probably have heard of the various types of home insurance policies, but chances are that you’ve never heard of a title insurance policy.
What is a title insurance?
It’s a policy that ensures you won’t have any undisclosed claims made to the ownership of your home.
Nothing can be more frustrating than buying a property only to discover later than the previous owner had not paid property taxes for the past three years. Or that there are liens that were not disclosed and may be claimed later.
As the new owner, you become responsible for such payments. By buying a title insurance policy, you’ll be protected against such claims. This means you won’t be liable for any payments that were defaulted by the previous owner.
Buying a foreclosure can be a very profitable investment if done right. It can also be a nightmare if absolute care and diligence are not exercised when buying.
The rule of thumb is to think like an investor and not like a desperate buyer when making the purchase decision. If you’ve been pondering over how to get a foreclosed home, these tips will help you make an informed buying decision.
Check out our blog for more home buyer tips and smart strategies for selling your home.