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5 Tips for Buying a Foreclosure Home
Published: 05/23/2011 by Kristie Lorette
In the wake of a crumbling housing market and economy, the number of foreclosure properties on the market is abundant. Buying a home that is in and has gone through foreclosure can be a great way to get a valuable home at a reduced cost. Foreclosure homes, however, have their own set of quirks and pitfalls you need to be aware of before purchasing one. Consider these five tips before you decide to go through the process of buying a foreclosed home.
Tip #1 Assemble a Team of Foreclosure Experts
Your first stop should be to hire a foreclosure specialist that is on your side. Here is the thing: foreclosure homes that are owned by the banks and lenders are not directly sold by the banks or lenders. The lender generally hires a real estate agent to list and sell the property on the lender’s behalf. They also have legal professionals on their side offering them advice on maneuvering the process.
Since the lender has a real estate professional on its side, you should also have one on your side. Talk with the real estate agent about hiring a tax advisor, legal professional or any other professionals you should have as part of your foreclosure team.
Additionally, the foreclosure process is slightly different than buying a regular home for sale. Since there are some steps and issues you need to aware of, you need a real estate professional that knows how to maneuver the process of buying a home in foreclosure or that has been foreclosed upon.
Tip #2 Prepare
Preparing to buy a home in general requires major financial preparation on your part. Buying a foreclosed home is not any different. Depending on the state where you are buying the foreclosure, you also need to prepare for the legal possibilities. In some states, the homeowner can challenge the foreclosure in court and hold up the purchasing and closing process on your part. This can put your buying of the home at risk. It can also put your money at risk because you may have to shell out additional costs in legal fees to challenge the challenge.
Tip #3 Set a Purchase Price
Before you put in a bid to buy the home, make sure you are fully aware of the value of the home. Have your real estate agent provide you with comparables (comps) of similar homes in the area to get an idea of the true value of the home. You can also conduct some research of your own using sites such as Zillow.com to find out the selling price for similar homes in the area.
This ensures that you are not overpaying for the home you are buying. Remember, foreclosures tend to sell for around the amount of the mortgage balance. In the wake of the downturn in the housing market, home prices in some scenarios fell below the amount homeowners owed in the first place.
Tip #4 Get Pre-approved for Financing
Many lenders that are involved in a foreclosure transaction require proof upfront that the new buyer can qualify for a mortgage. Even before you start shopping for a foreclosure home, go through the process of getting pre-approved for a mortgage. A pre-approval can speed up the purchasing and closing process when you do find the home that you want to buy.
Tip #5 Understand the As-is Nature of the Purchase
Another pitfall for buying a foreclosure home is the lack of TLC the homes have received. Homeowners that knew they could no longer afford to make payments on the home also tend to stop making home repairs and properly maintaining the home. When you come in as the buyer, this means that you will most likely have some repairs (be it major or minor ones) to make the home livable. Foreclosed homes do not tend to come with home warranties or anything covering you as the buyer, so it is an as-is sale.
While buying a foreclosure can get you a great house for an inexpensive price, there are also some items you should be aware of before entering into the deal. Following these five tips can help you to avoid some of the major pitfalls and make the process of buying a home in foreclosure as efficient as possible.
