Probably anyone who has thought about buying a house (or has already purchased real estate) has encountered such a term as foreclosure. We want to assure you that this is not a scam. Foreclosure houses are indeed available on the market. However, it is important to consider both the advantages and disadvantages of this matter. Let’s see how the process of buying a house on a foreclosure works; how to find foreclosed homes in your area and also how to minimize the waste of money and time in the process.
What is foreclosure
When a mortgage lender takes possession of a property, this is called a foreclosure. The house is under confiscation, meaning the lender is now the legal owner of the residence.
House buyout and sale
Imagine that once the house had an owner, but for some reason, they did not pay the loan or violated the mortgage terms. Now, the property is in default, and the bank is trying to collect on their loan. This allows the lender to recover the total mortgage amount — that is, to sell the property. In such cases, the lender uses the property as collateral if the borrower fails to comply with the loan agreement terms.
How to find foreclosed homes in your area?
- Real Estate Websites
- Bank offices
- Local newspapers
- Lenders sell seized assets through real estate agents. By the way, some real estate agents specialize only in real estate takeover.
Types of foreclosure
There are several steps in this process, and let’s look at each one:
Such property is in a pre-foreclosure condition when the mortgage lender notifies borrowers that they are in debt. During this period, if the homeowner can sell their property, they can prevent foreclosure and avoid any adverse impact on their credit history.
A short sale occurs when a homeowner sells their property for a price significantly lower than the remaining balance on their mortgage. For example, if a homeowner owes $200,000 on a mortgage, but the financial crisis forces them to sell a home for $175,000 quickly.
Purchasing a short-term property is similar to buying a regular home, but the contract’s wording may vary as it is subject to the lender’s approval of the terms. Furthermore, it is important to note that a short sale offer may take several months to receive a response from the bank, which can significantly prolong the process compared to a standard purchase.
Sheriff’s Sale Auctions
At this point, the lender warned the borrower of the default and granted the borrower a grace period to catch up on mortgage payments. Then the lender has every right to hold an auction. The purpose of the auction is to recover the overdue loan quickly.
The highest bidder wins the auction for the property. You can find these ads in local papers or just by googling.
The bank-owned property
If the property fails to sell at the auction, it is then returned to the bank and becomes the bank’s property. A mortgage lender, bank, or mortgage investor now owns the home.
For instance, someone acquired property through loans supported by either the Federal Housing Administration (FHA) or the United States government’s Department of Veterans Affairs (VA). When these homes are foreclosed, the government seizes them and sells them through federally licensed brokers.
To purchase state-owned real estate, you must contact a state-registered broker. Buyers can view options on the US Department of Housing and Urban Development (HUD) website.
How to buy a foreclosed home?
Find a Representative
One option could be to consult a real estate agent or mortgage broker with extensive knowledge of the foreclosure home process. Such experts are well aware of all the risks that a potential buyer may face.
Get Mortgage Pre-Approval
The fact that most real estate investors pay cash for foreclosed homes creates a highly competitive market. So, if you cannot afford the property upfront, you must finance it. Before buying a foreclosure property, it is recommended that you obtain pre-qualification or pre-approval for a loan and have a clear understanding of the amount you can borrow.
Research and compare prices
Understanding what kind of property your budget will allow you to purchase is significant. You have to look closer and understand what options you should count on. Also, you can compare the house with similar properties where you are looking for housing.
Let’s say you have already chosen a house. And that means it’s time to make an offer. At this stage, you work with a broker to negotiate a price with the property owner or lender. You can also bid on the auction.
Hire a house inspector
A home inspection is very important! Yes, this service costs money, but it will likely help you save money. A home inspector can assist you in identifying necessary repairs, faulty areas, and areas that may require additional investment in your home. To ensure your safety, we recommend taking precautions as previous occupants have resided in this location. Additionally, previous tenants may not have adequately maintained the house.
Closing the deal
During the final stage, you will be required to pay and sign documents. And, of course, enjoy buying a home!
Benefits of buying a mortgaged home
The main advantage is, of course, the price. Foreclosed homes almost always cost less. Their cost is significantly lower than the market. The lender sets the price and wants to get the house off their accounts as quickly as possible.
Although there may be slight differences in bidding and buying a mortgaged home, you should still have access to several lending options as long as the auction does not strictly require cash payments.
You can obtain a conventional loan, a government-guaranteed loan, a VA loan, an FHA loan, or a USDA loan to finance the purchase of the home you are considering. But, if the property is destroyed, the government may require repairs to be made here.
Disadvantages of buying a foreclosed home
When people realize they will likely lose their home to foreclosure, their motivation to keep it in good condition drops dramatically.
If something breaks, the homeowner will not spend money on repairs, which means that the situation will only worsen over time. When you purchase a home that has gone through the foreclosure process, you are responsible for fixing any problems that may arise with the property.
Therefore, you should only buy a foreclosed house if you have separate cash to invest in repairs later.
Although the house may be going through a foreclosure process, someone may still be residing there. Many seized places remain uninhabited for months or years, making them vulnerable to squatter takeover. Suppose you purchase a home that is currently occupied by squatters. In that case, it is necessary to follow proper eviction procedures, regardless of whether or not the individuals have legal rights to the property.
How to find foreclosed homes in your area? Conclusion
Having saved on buying a house, you can spend more on repairs and arrangement of such housing in the future. Therefore, if you are considering purchasing a foreclosed home, carefully weigh the pros and cons so you do not regret it later. Financing for the purchase of real estate can be found in different financial situations. Contact LBC Mortgage for a free consultation. Start your journey towards buying property now!