Foreclosed homes are becoming a popular option among real estate buyers and investors. These properties are often priced below market value to attract a quick sale. However, foreclosed real estate often needs extensive repairs that can add several thousand dollars to the purchase price.
Foreclosed homes are sold at public auction or at banks. Once real estate is repossessed by lenders, the property is first put up for sale through foreclosure auctions. If the property does not sell at auction, it is returned to the lender. The banks then take action to remove any attached creditor judgments or tax liens so the property can be sold with a clear title.
Bank-owned foreclosure properties are priced higher than auction real estate, but buyers don’t have to deal with the costly duties associated with properties sold at auction.
Buyers planning to purchase homes through foreclosure auctions should take the time to understand the foreclosure process in the state where the property is located. In some states, owners of foreclosed properties have the right to buy back their home after it has been sold at auction. This can be problematic for buyers because they stand to lose money if they make repairs during the 30-day waiting period. It can also be problematic for real estate investors who buy houses to rent or trade.
Buyers who buy foreclosed properties through banks don’t have to worry about the property’s previous owner claiming their home. Buyers can take possession and proceed with necessary repairs or immediately rent the home to tenants.
Before submitting purchase offers on bank foreclosures, buyers should perform their due diligence by obtaining home inspections, property appraisals, and repair cost estimates. Banks rarely accept purchase offers for less than the listed price unless significant damage is discovered during inspection. When unreported damage is found, buyers should take photos and submit repair cost estimates and photos to the lender with their proposal.
Buyers of foreclosed real estate generally must obtain pre-approved financing for their offer to be accepted. When purchasing homes through auction, buyers are typically required to present funds within 24 hours of accepting their offer.
People who have never purchased real estate through auctions or banks may find it helpful to work with a foreclosure specialist. Many real estate agents have experience in this area and can help buyers locate the type of property they prefer and help them through the entire buying process.
A popular source for buying foreclosed homes and obtaining low-cost financing is Fannie Mae Home Path Mortgage. This government-sponsored program offers a variety of foreclosed properties across the country. Buyers can apply for special financing options through Home Path Mortgage. Fannie Mae is working with select lenders to offer low down payment requirements, low-interest home loans, and assistance with closing costs. A unique feature of Fannie Mae Home Path is the option to get down payment assistance. While conventional lenders prohibit borrowers from obtaining down payment money from outside sources, Fannie Mae allows borrowers to receive down payment funds from family, friends, employers and non-profit agencies.
The Department of Housing and Urban Development is another good option for buying foreclosed properties at a discount. HUD provides free housing counseling to help buyers determine how much home they can afford, as well as whether they qualify for government grants or first-time homebuyer programs.
Buying foreclosed real estate can present risks not associated with buying homes from individual sellers. Buyers can minimize risks by working with a real estate agent or foreclosure specialist and doing their due diligence. Those who take the time to educate themselves on the process of buying distressed real estate will improve their chances of getting the best price and financing options.