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Foreclosures are a tragedy for the family who loses their house to the bank, but an opportunity for another family to purchase a home at a good price. If you are interested in purchasing a foreclosure property, whether as a personal residence or an investment, there are some things you should be aware of. This page will outline what you need to know about how to buy a foreclosure property.
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How to Buy a Foreclosure
The expert on this video shares some tips on buying a foreclosure. Don't buy at courthouse auctions- there could be title problems, you'll need cash, and you don't have the opportunity to inspect the properties. He recommends that you use a regular realtor, but make sure to be pre-approved for a mortgage as you'll need to be able to close quickly.
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Introduction
Several years ago, if you were interested in purchasing a foreclosure property, you needed to review court records or legal filings, or attend an auction at the local courthouse. As the number of foreclosures as risen, banks have turned to specialized real estate agents to market their inventory of foreclosures, simplifying the process for people who are interested in purchasing a foreclosure. Even though you're working through a real estate agent, you need to be cautious and do your homework. -
Step 1: Buy From a Bank
Although you may be tempted to buy at auction before a bank takes possession of the foreclosure, auctions are not generally great places for non-professionals to buy foreclosures. You usually need to pay cash, won't have an opportunity to do a comprehensive home inspection, and may later discover that the property is burdened by outstanding liens. Leave the auctions to the professionals. -
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Step 2: Bring in a Contractor
In addition to a standard home inspection, you'll want to get an estimate of repairs needed from a contractor before you bid. Homeowners who have lost their homes to foreclosure generally have not had the money to perform routine maintenance, and foreclosure properties often need significant repairs. -
Step 3: Bid Low and Be Prepared to Wait
Banks don't want to take a loss on these properties, and may start out listing them at market value. They don't want to be in the real estate business, however, so the longer they've held the property, the better the odds are that they will accept a low offer. Make sure you've been pre-approved for a mortgage, to enhance your credibility. Start out with an offer of about 20% below market value, and follow up with the bank weekly reminding them of your interest. -
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