A foreclosure home is one that is being or has been seized by a lender as a consequence of the homeowner defaulting on their loan. Here’s what you need to keep in mind when buying a foreclosure home:
Not all foreclosure homes are REO properties
A foreclosure home is property that’s either in the process of being auctioned off or has already been taken back by the lender. Once the lender repossesses the home, they’ll put it up for auction and set a minimum price. Usually this is the amount that the previous homeowner owed on the mortgage, in addition to legal costs.
If no one bids the minimum price, ownership reverts to the lender. This is when the home becomes a real estate owned (REO) property. This is also known as a bank-owned property. While a property is on the lender’s books their asset managers often work with a real estate agent in order to sell it.
Buying a foreclosure home at auction
You can purchase a foreclosure home through an auction organized by bank-hired trustees. Auctions usually take place in local courthouses and hotel conference rooms. Some auctions may also take place online.
There are two kinds of auctions – a lender confirmation auction and an absolute auction. When it’s the former, be aware that the lender won’t necessarily accept your offer even if you’re the highest bidder. With an absolute auction, however, the home goes to the winning bidder.
Be financially ready
Lenders will want to entertain offers from buyers who can show that they already have financing lined up. If you’re planning on taking out a loan to purchase an REO property, it’s a good idea to get preapproved for a mortgage before making an offer or even before looking at homes.
A bank will usually offer you a loan if your credit is good. The interest rate and terms will be affected by your purpose for the property. Its current condition will also be a factor. If the home you’re interested in is a fixer-upper, you may want to consider an FHA 203(k) loan.
Understand what “sold as is” entails
In general, foreclosure properties are sold as is, which means the seller (the bank) will not undertake or even consider any repairs. What you see is what you get. So, before you make an offer, have the property inspected by a professional home inspector. They’ll be able to tell you what the issues are. They may also provide you with an estimate on how much repairing them will cost. Factor that in when you make your offer.
If your goal is to live in the property, you will want to estimate how long the repairs will take as well so you can plan accordingly.
Buying a foreclosure home is an excellent way of acquiring property at below market price. In order to ensure that you’re getting the best deal and avoiding potential pitfalls, you will want to work with a professional who understands the distressed property market.
Need help navigating the foreclosure purchase process? I’m here for you. Call or text me at 760 622 5087 or contact me today.