How Do You Buy a Home In Foreclosure?
Buying a home in foreclosure can often be a way to get an incredible deal -- but the process can be complex. Often, purchasing a home in foreclosure takes research, effort, and time. Before you consider attempting to buy a foreclosed home, it pays to know what you’re getting into.
How Buying a Foreclosed Home is Different
In a lot of cases, purchasing a foreclosure will be different than buying a traditional home. Some major differences include:
Usually, only one agent is involved in the process
There may not be any room for negotiation
Sellers may require a pre-approval letter from a lender
Homes are sold as-is (and may not be in great condition)
How to Prepare to Buy a Foreclosure
If you have your heart set on buying a foreclosure, the first thing you should do is to find a real estate broker that specializes in foreclosures. Ideally, this is one who has good relationships with banks who may own foreclosed properties. Meanwhile, you should also contact lenders in an attempt to get a preapproval letter.
While it’s a good idea to contact brokers directly, you may find more success by directly researching foreclosure listings, which can be found on certain sections of traditional real estate websites, as well as on websites that specialize specifically in foreclosures. Some of these homes may be listed as REO (real estate owned), which means that the property is currently owned by the bank or lender.
Since foreclosures often go quickly and competition can be fierce for properties set at a low price, it’s pretty much always a good idea to have a pre-approval letter before you start seriously pursuing foreclosed properties. Since you’ll likely be up against serious buyers who already have a preapproval letter (or may even have the funds to buy the house in cash), you’ll need to show you’re serious, too, if you want to have a good chance at buying the home you want.
Buying at a Foreclosure Auction
Another way to purchase a home in foreclosure is at a foreclosure auction. While buying at an auction may be able to get buyers even lower prices on foreclosed homes, auctions aren’t for everyone.
For one, most auctions will require for buyers to pay immediately, in cash, which many people simply don’t have. Plus, buying a foreclosed property at an auction can be incredibly risky; there is typically little time to inspect the physical condition of the property or to conduct a thorough title search. That means that the buyer will be responsible for any title issues that may arise in the future -- a risk which a lot of buyers simply aren’t willing to take.
Buying a Home in Pre-Foreclosure
Another way to get a great price on a home can be to purchase a home in pre-foreclosure. At this stage, the current owner of the home has been given a notice that the foreclosure process will begin soon. A homeowner in this situation may be eager to sell the home, since doing so is often the only way to avoid foreclosure at this point, which can save their credit score and may even provide them with a bit of home equity.
Just like other kinds of foreclosure purchases, buying a home in pre-foreclosure requires great timing, so it’s essential that you have your financing lined up before you approach a potential seller.