Buying A Foreclosed Property

What's the best advice when searching for foreclosed houses? I'm a first time buyer but looking to stay within my budget.

I recently fielded this question on a popular real estate listing website. It’s a good question. Most people are looking for a "good value. While foreclosures can offer value, one should know that they are sold "as is”. Buying a foreclosed home is a little different from buying a typical resale.  Some loan programs require that repairs done in order for them to loan money on the property. The seller usually wants a pre-approval letter from a lender before accepting an offer. It is for this reason that you know what type of loan you are qualified for before even looking. There often is little, if any, room for negotiation. On the upside, most bank-owned homes are vacant, which can speed up the process of moving in.

In looking specifically for foreclosed properties the first step should be to talk with your local lender to find out how much you can afford. Next is to meet with a Realtor about your wants & needs. I would not only focus on foreclosed properties, but other typical resale properties. Sometimes the repair issues & expenses can out weight\ the list price. Banks aren't necessarily selling foreclosures at fire-sale prices; most are listed at market value.

Check Your Credit Rating

To save yourself some time before going to you lender check your credit score. Credit scores range between 400 and 800. 620 + is considered “good”, 680 + is considered “premium” and may possibly help get you a lower interest rate. Make a list of your current debts, see which ones can easily be eliminated. A $500 a month debt payment (like a credit card or auto loan) could lower the amount of home you can afford by about $83,000! If there’s one essential ingredient for every successful REO, it’s having proof of funds in hand.  All cash is still the preferred option, but loans for REO purchases are on the rise, mostly from hard-money lenders like hedge funds and private investors instead of more conventional sources.

Do Your Homework

You need to know that a bank-owned foreclosure home may be vandalized or stripped by the angry home

owners so it will be sold 'as is'. If something breaks or malfunctions, the current owners will not fix it. Buying a foreclosed home is not for the faint of heart. They often require major repairs. Definitely have an inspection and consult a contractor. A lot of people underestimate how much work the home needs and the cost involved. For properties that have been left vacant for any amount of time, it’s important to check for any plumbing or electrical issues, vandalism, foundation problems, and mold.  Ensure the title is clear and check for any liens — such as builder liens and taxes — that need to be paid off. Don’t expect complete property records. Lenders usually don’t have them and won't work to obtain them. This is public information and usually can be found at a county’s recorder’s office.  Find out how much is owed on the home and make a list of everything that needs to be repaired, with an estimate of costs (add 10 to 20 percent to pad it). Now, you’re ready to make an offer.

Remember the early bird definitely gets the worm in the foreclosure market, if it looks like a great deal, other buyers are undoubtedly looking too.

The 5 Essential Tips For Buying a Foreclosure

1. Get pre-approved for a mortgage.
2. Find an agent who is knowledge about foreclosures.
3. Know how long it takes to sell a home in your price bracket.
4. Study the sale prices of comparable homes in your area.
5. Remember the sale is for the home as is, figure in repair costs.