Foreclosed homes can be a good choice for first time home buyers, real estate investors, and individuals looking for a second home. Most foreclosure real estate is sold below market value. However, these properties are sold in ‘as-is’ condition, so buyers must engage in due diligence to determine the true costs involved.
Foreclosed homes are first placed for sale through public foreclosure auctions. If no one bids on the property, houses are returned to the lender who places the property for sale through the bank’s loss mitigation department or an assigned real estate agent. When foreclosure property is returned to the bank it becomes known as real estate owned (REO) or bank owned foreclosures.
When buying houses through foreclosure auctions, buyers should become informed about their states’ foreclosure process. Some states allow foreclosed property owners the opportunity to buy their house back within 30 days after being sold through public auction. This can be particularly disruptive for investors who buy homes for use as rental homes. It can also prevent individuals from moving forward with repair work.
Bank owned real estate is typically priced higher than properties sold through public auction. However, buyers need not worry about previous owners reclaiming their home. Additionally, REO property is sold with a clean title; allowing buyers to take immediate possession.
The majority of foreclosure homes require some level of repair. When people lose their home to foreclosure they have usually been struggling with finances for quite awhile. Property owners who cannot afford their mortgage payments usually cannot afford to keep up with required maintenance or extensive repairs.
Another issue is foreclosed property owners sometimes inflict damage on the property as their way of ‘getting even’ with the bank. Many foreclosure homes sit vacant for long periods of time and are often subjected to vandalism.
It is not uncommon to find foreclosure homes with broken windows, missing appliances, and busted plumbing fixtures. While banks price foreclosure properties below market value, buyers should obtain repair cost estimates to determine if the home is a genuine value or potential money pit.
Buyers of foreclosure real estate generally must obtain preapproved financing prior to submitting purchase offers. Preapproved financing does not guarantee buyers will qualify for a home loan. Instead, prequalification lets buyers know how much they can afford and shows sellers those buyers are serious about buying a house.
One source many buyers and real estate investors are turning to for buying foreclosed homes is Fannie Mae Homepath properties. Buyers of these bank owned properties can apply for special financing using Fannie Mae Home Path Mortgage. Currently, Fannie Mae is offering a low down payment requirement of 3-percent, along with 3.5-percent closing cost assistance.
Individuals unfamiliar with buying foreclosure real estate should consider working with a realtor or real estate investor who specializes in this field. Foreclosure specialists can guide buyers through the process and easily locate the type of properties desired.
Buying foreclosure realty is not without risk. Buyers can minimize risks by working with qualified real estate professionals and conducting due diligence. Taking time to become educated about the foreclosure market can help buyers located discount priced property and obtain low-interest mortgage loans.
GovernmentAuctions.org – Government and Bank Foreclosures for Sale
HomeSales.gov – Homes for Sale by the U.S. Government