If you are looking for great real estate deals, foreclosed homes present an attractive option, as they are priced to sell. Since the national foreclosure rate has been falling steadily and hit a 13-year low in 2018, foreclosed houses are being lapped up as never before. The time to buy is now.
However, before going in for one, consult a real estate agent. And the best way to choose an affordable one is to compare realtor commissions. Although a realtor will be your best guide in this matter, it is always better to be informed about foreclosed homes.
So, consider the following factors:
#1 Visit a foreclosed home
Visiting a foreclosed home is essential to check its maintenance, since you are not buying it directly from a homeowner but a bank, due to the former’s default in the mortgage payment. A physical visit will let you know the condition it is in and the major repairs required. You will also be able to get a feel of the neighborhood and the surroundings. If the area has several foreclosed homes, it may point towards the neighborhood getting devalued. This makes the investment in such a house a risky proposal.
#2 Get the house inspected
This is different from your visit to the house, where you are looking only at its condition. Sometimes, the homeowner can deliberately damage the property out of sheer disgruntlement of being forced out of the house. The best way to make sure the house is in order is to take the services of specialty inspectors, who are trained to inspect the major systems, such as plumbing, electrical system, HVAC, sewer lines, molds, etc. You will need to budget for extra expense to get plumbing and electrical systems up and running for the inspection.
#3 Find out the cost of renovation
Based on the report of specialty inspector, you may need to apply for 203(k) mortgage, also known as a renovation loan. This loan not only allows you to buy a house, but also finance certain improvements, such as roof replacement, kitchen remodeling, updating of plumbing, and the like. You must take this loan if the property needs renovation in the range of $10,000 to $15,000.
#4 Don’t let up on price negotiation
Banks usually offer the property under the market value, since they are eager to sell it at the earliest. This provides an opening for you to negotiate for things like reducing the sale price, decreasing down payment, doing away with escrow requirement, or limiting or stretching your closing period. There is every chance for the bank to agree to your demands since the bank is not interested in either maximizing its profits or ending up in the red. It is only interested in getting the property off its hands.
#5 Be able to finance at a short notice
Foreclosed homes go off the shelf in a jiffy, since banks are keen to dispose of them to avoid losing money on unpurchased homes. So, it is crucial to seal the deal at the earliest, lest you lose out on an ideal foreclosed house. You can do so if you put your finances in place before even offering to buy a foreclosed home. Paying at the earliest is possible, since the bank does not expect you to pay cash down, but is open to payments through traditional financings, such as VA loans or FHA loans.
#6 Closing a deal takes time
You will not get to move in immediately into the foreclosed home you have purchased but may need to wait. It takes anywhere from a week to around 50 days in transferring a home from the homeowner to you. This delay is due to the hurdles caused by the process of closing. Delay in moving in may also be due to the renovations being carried out to your home.
Foreclosed properties are sold by banks to recover loans that homebuyers fail to pay. Such houses are heavily discounted and, if you keep the above factors in mind and foot the realtor fees, you will manage to clinch a lucrative property deal with substantial savings.