5 Steps To Buying A Foreclosed Home
Buying a foreclosed home can seem daunting, following these five steps will help make the process a little easier.
1. Find an experienced real estate agent
2. Get a preapproval letter.
3. Look at “comps” before making an offer.
4. Bid higher if other foreclosures are selling fast.
5. Be prepared to buy a foreclosure in “as-is” condition.
Step 1. Find an experienced real estate agent
Hire an agent who has experience with the foreclosure process. To find the right agent visit websites with a database of foreclosed homes in your desired area. Look for Realtors who have specialized real estate training in foreclosures, such as the Certified Short Sales and Foreclosure Resource (SFR) designations. You can also ask your friends and family for referrals.
Once you find an agent you want to work with, ask them to look out for foreclosed properties that meet your criteria. These listings can go fast, so be prepared to move quickly.
Step 2. Get a preapproval letter
Unless you can afford to pay cash, you will want a mortgage pre-approval letter in hand when you make an offer on a foreclosure.
Find a mortgage lender who understands your goals, and gather the necessary paperwork to obtain a preapproval letter.
Step 3. Look at ‘comps’ before making an offer
Finding the right price to offer is as much an art as it is a science. Your agent can run a comparative market analysis (CMA), which helps you understand recent sale prices of comparable properties, or “comps.” Understanding what homes are currently selling for in your area will set your expectations on how much you will need to offer.
Step 4. Bid the higher price if other foreclosures are selling quickly
There’s no exact formula on what the bank’s bottom line will be if foreclosed homes in your area are selling quickly, it is important to work with your agent to craft a strong offer. In many instances, foreclosures are already discounted so an offer that is too low might be a non-starter for the bank.
Keep in mind that the type of house and location matter, some homes might sell faster than others. In competitive markets, you might need to offer asking price (or slightly more if there are multiple bids) and keep contingencies at a minimum.
Step 5. Be prepared to buy a foreclosed home in ‘as-is’ condition
When purchasing a foreclosure, the property is usually sold in “as-is” condition. This means that the seller can not guarantee the property’s condition, such as termite infestation, structural issues or lead paint. It is very unlikely for repairs to be made on a home that is being sold “as-is”.
Because foreclosures are sold “as-is” you need to get a home inspection if you plan to buy a foreclosed home. A home inspection is not required to buy a home, but it can identify major issues the bank is not aware of. Knowing the condition of the home will help you make an informed decision whether to continue with the home purchase or walk away.
Is buying a foreclosed home a good idea?
You could reap big savings if the foreclosure you plan to purchase is priced right. Deciding if a foreclosed home is right for you depends on a variety of factors, your risk tolerance, potential reward, financing, and your ability to move quickly. Definitely do not discount a foreclosure in your home search.
How to buy a foreclosed home: Get a loan or pay in cash?
Foreclosures tend to get scooped up by real estate investors who often pay cash. Do not let the competitive nature of foreclosures deter you from putting in an offer. If you are bidding on a particularly competitive home you need to make sure your offer is ambitious if you want to compete against cash offers.
Your lender will require an appraisal to assess the home’s value so keep that in mind when making your offer. If there is a shortfall between your offer and the home’s appraised value, you may have to make up the difference in price if the bank (the seller) does not budge.
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