What Do You Need to Know When Buying a Foreclosed Home?

What Do You Need To Know When Buying A Foreclosed Home

In today’s competitive real estate market, buyers are finding it difficult to locate the home of their dreams. 

With higher asking prices, that in some circumstances can be pushed even higher due to a bidding war, worrying about whether you’re able to afford the monthly mortgage installments is a genuine concern. 

But there might be an opportunity to buy a home cheaper, by buying foreclosed homes.

Before we explore why buying a foreclosed house is considered cheaper than the usual method, here’s what it means when a home is foreclosed on. 

What is a Foreclosed Home? 

Banks or lenders own foreclosed homes. They’ve taken possession of the property due to the fact that the owner has not been able, or has refused to pay their mortgage

Taking possession of these large assets is actually an inconvenience for the lenders and banks. As they’re without any passive income, which was covering this large asset. This means they are going to want to sell this property as soon as possible before other issues pop up. 

If the property is in a derelict state, it could be classified as condemned and this would require major renovation work to be classified as livable again. This matters as prices on properties plummet when homes are condemned. 

It’s in everyone’s best interest to move the property along. This speed often means that properties are priced low so that they will sell quickly. While these homes might be in various conditions, buyers are looking to seal a good deal. 

The biggest challenge is finding the best foreclosures to purchase. But what’s the process of buying a foreclosed home? 

Or what steps should you follow? 

How to Buy a Foreclosed Home

As we stated, your first port of call is to find foreclosed homes. While some might be uploaded to multiple listing services (MLS) online, you can also read through your local newspapers. You will also want to search a number of government websites for real estate owned (REO) properties, or foreclosures. This will result in a variety of property resources to sift through. 

If you do draw a blank, you can always reach out to a realtor who specializes in dealing with foreclosed properties. These are specialized agents who are connected with the banks and government entities. They can only share properties that have been officially listed, but they should still give you a competitive advantage when sourcing properties. 

Also, when you buy foreclosed homes, you are bound to be greeted with mountains of paperwork. Hiring a professional with niche segment experience will ensure the process moves along quickly. 

Another method of locating foreclosed homes to purchase is to search for auction companies that specialize in selling foreclosed houses. 

These companies operate across the country and open bidding to national audiences. At an auction you will need to do some in-person investigation of the property if you can, as auctions don’t allow for viewings, you purchase the property ‘as is'. But you might be able to view the interior via photos and written descriptions. 

So, researching the history of the building will be a must. 

With these different methods of purchasing a foreclosed home, there are a number of variations to consider between buying a typical real estate transaction and the purchase of an REO property. 

Differences Between Typical and REO Property Sales

When buying a foreclosure home, the property sale takes longer than usual. This is because it must go through multiple levels of approval. The first step is your bank will need to approve your offer. 

As we mentioned, the property is usually priced at below market value to ensure the property sells.

And again, it’s important to remember that the major difference between typical and foreclosure properties is that with the latter, you are often not allowed to view the property.

This means that often banks won’t accept the risk and buyers need to resort to cash purchases. 

Although, after the purchase, the buyer can ask for an appraiser to visit the site and file for a mortgage. So, a short-term loan could be the method to go with. 

While it’s not always required to pay the full amount in cash, there is often a need for earnest money deposited for a show of good faith.

Before closing a foreclosed deal, there might be some additional work required from the agent in researching the title deed. Previous owners of foreclosed homes often have liens filed against them. This can take time to resolve as well. 

In short, if you’re wondering, “How do you buy a foreclosed home?”. The short answer is - it's a lot of work but it’s possible. 

But if this hasn’t scared you off, and you’re still keen to purchase a foreclosed home, and you understand there are certain defined channels of purchasing a foreclosed home, there are specific steps you should take if you are considering buying a foreclosure home. 

Steps to Follow When Buying a Foreclosed Home

As mentioned, buying a foreclosed home is a complex endeavor. There are set rules that you should follow to ensure that you don’t get bogged down with paperwork.  

These include:

Determine Your Price Range

When it comes to purchasing a foreclosed home, budgeting is more important than usual. While foreclosed homes are cheaper, they aren’t free. 

You’ll need to draw up a budget of what you can honestly afford, and because the bank might walk away from helping you finance the deal, you need to make a plan B. By skipping this step you could land up like the previous owner of the property. 

It’s also important to determine your debt-to-income ratio. This is a ratio that analyzes how much of your gross monthly income your monthly expenses will consume. 

As a rule of thumb, most banks won’t take more than 43% of your gross monthly income. If higher, you're going to struggle with financing the new deal. 

Also, you might need to foot the bill for large-scale renovations. Beware of this and make a plan. 

Hire a Specialist Realtor

As we’ve mentioned, this is a complex process requiring loads of insight into a niche segment of the market. From finding the right listing to knowing the logistics and loopholes. 

Your realtor is going to be more like a good business partner on this deal. Also, each state has its own unique laws on selling foreclosed homes, so this is really something you need a professional involved with. 

If You’re Not a Cash Buyer, Get a Preapproved Mortgage

While it’s highly advisable for most real estate transactions, getting a preapproved mortgage is an especially smart move when purchasing a foreclosed house. 

A preapproved mortgage is one where the lender will run your credit and verify your income and debt. 

This will give you a better idea of whether you will even be approved for your goal mortgage. If you only qualify for a $200,000 loan, you won’t be bidding for properties that are $300,000. 

All sellers are keener to work with a buyer with an approval letter, as they can be guaranteed that the deal won’t fall through. 

Banks can be hesitant to work with you if your credit score is low, and you’re trying to purchase a foreclosure property. You can file for a loan to purchase the property but just be warned about the interest rates on such a financial agreement. 

And the last step is to get a proper investigation/inspection completed when you’ve taken ownership. 

Get a Home Inspection 

You are buying the property as-is, and the seller isn’t liable for addressing the repairs. However, it’s still important for you to understand the scale of the repairs you need to undertake. 

If this sounds all very risky, it is. And if you’re planning on selling your home as-is, you’re looking for a cash buyer, but they are rare. 

So, why not try an iBuying service! But which one? House Buyers of America - here’s why!

Why Trust House Buyers of America to Buy Your Home? 

Since 2001, House Buyers of America has bought and sold homes in Maryland, Virginia, and Washington, DC. During this time we’ve innovated the real estate game, as well as impressed thousands of customers. We buy houses!

It’s this longevity and success that sets us apart. 

And if you don’t believe us, you can trust our hundreds of references. Not many companies in our industry are as well respected as House Buyers of America. 

Currently, we have over 100 reviews with 5 stars, with testimonies from a select few! Most of these reviews highlight that House Buyers of America will: 

  • Sell houses fast

  • Pay cash for homes

  • Treat you with the utmost respect

House Buyers of America has also earned an A+ rating with the Better Business Bureau (BBB), which is an organization that helps United States consumers find businesses they can trust. 

But it’s our positive rating on Facebook and Google we’re most proud of, with hundreds of positive reviews. 

When you’re selling your home you want to be 100% sure that you can trust the company you’ve contracted to help you. And nothing will put your mind at ease more than reading our clients’ reviews of our services. 

And because our clients have spoken about us with such fondness, we’ve been asked to contribute thought leader comments to various publications. 

Submitting our professional opinion to America’s most trusted media outlets, like: 

  • USA Today

  • The Wall Street Journal  

  • CBS News

  • ABC

  • NBC

  • And Fox

But how does House Buyers of America work? 

How House Buyers of America Works

We’ve ensured that every step is simple, quick, and efficient. That’s why our first step is you approaching us. Simply give us a call at 855-659-3289 or use our online form to get started!

Within 10 minutes, if the call is made during office hours, we will have a fair cash offer for your property. Once we’ve gathered your information, we will arrange a time for us to come by the house to finalize that important paperwork. 

And once you’ve signed on the dotted line, the money will be in your bank account in a matter of days. 

It’s never been easier to sell your house fast

Get an offer with a click of a button

Sell your home directly to House Buyers of America and can skip all the hassle and months of uncertainty. Simply enter your address – and get our offer with a few simple steps.

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