Get pre-qualified for a loan and set aside funds, and you’ll be ready to purchase a foreclosed home.
When lenders take over a home through foreclosure, they want to sell it as quickly as possible. Since lenders aren’t in the Real Estate business, they turn to Real Estate brokers for help marketing their properties. Buying a foreclosed home through the multiple listing service can be a bargain, but it can also be a problem-filled process. Here are five tips to help you buy smart.
1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers. They list them with Real Estate Agents who sells foreclosed homes for lenders, or have a Buyer’s Agent find foreclosure properties for you. You will be better off working with a buyer’s agent because you will have full representation. The Listing agent represents the Bank and may not be able to give you full service. To locate a Buyer’s Agent Specialist, call local Brokers and ask if they are the listing agent for any banks.
Either way, ask the real estate professional which lenders’ homes they’ve sold, how many buyers they’ve represented in a foreclosed property purchase, how many of those sales they closed last year, and who they legally represent.
If the agent represents the lender, don’t reveal anything to her or him that you don’t want the lender to know, like whether you’re willing to spend more than you offer for a house.
2. Be ready for complications. In some states, the former owner of a foreclosed home can challenge the foreclosure in court, even after you’ve closed the sale. Ask your agent if they know and understand the foreclosure laws in your state and who has negotiated with lenders selling foreclosed homes and has defended legal challenges to foreclosures.
Have your agent explain your state’s foreclosure process and your risks in purchasing a foreclosed home.
3. Work with your agent to set a price. Ask your Real Estate Agent to show you closed sales of comparable homes, which you can use to set your price. Start with an amount well under market value because the lender may be in a hurry to get rid of the home. Most cases you don’t want to bring your best offer to the table.
4. Get your financing in order. Many mortgage market players, such as Fannie Mae, require buyers to submit financing pre-approval letters with a purchase offer. Most lender will also have their own paper work they is required to be submitted with the offer. Your Buyer Agent will coordinate this with the Listing Agent. They’ll also may reject all contingencies. Since most foreclosed homes are vacant, closings can be quick. Make surre you have the cash you’ll need to close your purchase.
5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no longer make mortgage payments. Be sure to have enough money left after the sale to make at least minor, and sometimes substantive, repairs.
Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they won’t give you credits for repairs costs(or make additional repairs) because they’ve already factored the property’s condition into there asking price.
If you are obtaining a FHA Loan, FHA has certian guide lines on the condition of the property. A bank owned property may not fall in FHA standards and the bank may be unwilling to do the repairs needed to bring it to FHA code.
Lenders will also require that you purchase the home “as is,” which means in its current condition. Protect yourself by ordering a home inspection to uncover the true condition of the property, getting a pest inspection, and purchasing a home warranty.
Be sure you also do all the environmental testing that’s common to your region to find hazards such as radon, mold, lead-based paint, or underground storage tanks.