In some parts of the country, the housing market is making a remarkable recovery, while other areas remain depressed. Even within states that are seeing sharp increases in property values, some towns and neighborhoods are still reeling with high numbers of foreclosed homes. The opportunity to find amazing deals on a foreclosed home remains readily available for many buyers. Purchasing a foreclosed home comes with trade-offs, however. Some aspects of the process make it easier for buyers that are purchasing a home from individual sellers, while other factors make the process more complex. How does one go about buying a foreclosed home?
This is the first step any potential home buyer should take, whether they are buying a foreclosed home or they are purchasing the property from an individual seller.
"With changes to the lending industry, securing a mortgage or home loan can take much longer than it did previously," says mortgage officer Roger Rieland.
Not only can being pre-approved speed up this process, but it also gives the buyer a ballpark for their buying power. Rieland cautions potential home hunters, however, that simply because you may be pre-approved for a $400,000 loan does not necessarily mean you should purchase a $400,000 home.
Most lenders and mortgage brokers require loan recipients to obtain homeowners insurance, especially on foreclosed homes that may be at risk for substantial damage and in need of repairs. Once you are approved for a loan, your lender will ask for proof of homeowners insurance. It's a good idea to compare several quotes from a variety of insurance companies to ensure you find the best price. Independent insurance agents on the Trusted Choice network can help you shop around for the best and most affordable homeowners insurance available in your area.
Unlike traditional home sales, many foreclosed properties are not listed on online realty sites or other property search sources. And, if they are listed, very few details are provided. Veteran real estate agent Daryl Bronniche said if buyers are intent on finding a foreclosed property, they need to enlist an agent who has his or her ear on the pulse of the local market.
"As I work with several banks to help unload their depressed or foreclosed properties, I tend to find out about listings long before they are publicized," he said.
Having an experienced agent do the house-hunting for you can clear up considerable time and energy for you to devote to securing the financing aspect.
"If you have certain standards or expectations for a house, be sure to explain that to your agent," Bronniche adds. "Sometimes, especially those who work exclusively for banks, agents may try to pressure you into a home that doesn't meet your specifications. Be firm on your checklist of wants and needs."
Real estate attorneys advise people thinking about purchasing a foreclosed home to have a full title check done for the property. Scott Berry, of Berry Law Offices, said this is an important step that should not be overlooked.
"I've been through many foreclosures on both sides," Berry said. "The title is always my biggest concern when you're buying a foreclosed home. It's kind of a hope and a prayer that everyone before you did what they're supposed to do."
As homes can exchange hands several times throughout the foreclosure process when banks purchase the loans from other lenders, it is vital to be aware of any outstanding state or federal tax liens on the property. The new owner is responsible for any of those outstanding debts. Some homes still awaiting the final foreclosure process are in what is called a "redemption period," meaning the former owner still has a chance at occupancy.
"You may not even have the right to enter the house until the redemption period is over," Berry said. This period is typically six months, but that depends on state and local regulations. "It's a whole different process depending on where you are in the nation."
As banked-owned foreclosed homes are typically sold as-is, there is generally little room to negotiate on the price of any needed repairs before the purchase is final. In a traditional home sale, the buyers can often request the current owner to replace a broken window or remove a fallen tree. Banks typically do not want to go through that trouble. They simple want to unload the property and recover some of their losses. That's why it is so important to have any foreclosed home you are interested in buying checked out by a certified assessor or construction specialist.
"I see a lot of foreclosed homes that need extensive repairs," said rehab construction consultant Lee Alley. "I find anything from holes punched into walls, to all the copper wiring and plumbing has been removed."
You don't want to find out after the purchase that an entire section of the roof needs replaced. By having a professional estimate any repairs needed for the home, you can decide if the bank's asking price is low enough to make the deal appealing, even after the expense of repairs is factored.
When you find a home you would like to make an offer on, an experienced real estate agent who deals in foreclosed properties can give you an idea of the going rate for similar properties in your area. In some places around the country, foreclosed homes are being gobbled up at a much faster pace than others. For example, in Bronniche's service area, two-bedroom homes are in high demand.
"I can see a listing for a two-bedroom, foreclosed home at 8 a.m., and by noon, someone has snatched it up," he said. "Meanwhile, I've been trying to sell a four-bedroom home in the same neighborhood for months without a single offer."
Find out how similar homes in your area are selling, and move accordingly. You may want to consider making an offer slightly above the bank's asking price if foreclosed properties of comparable features and value are being sold quickly in order to avoid missing out on the chance. If the foreclosed homes in your area stay listed for longer, you may be able to make a lower offer and take your time.