By Paul M.J. Suchecki  Wed Jan 29, 2014

When to Buy a Foreclosed Home

Foreclosed Home by Alex France

morguefile source

Foreclosed homes can be bargains, which makes them most attractive to first-time home buyers and investors. Many established homeowners don’t have the time or want to expend the extra energy it takes to sidestep the potential landmines in a foreclosure purchase.

Foreclosed homes for first-time home buyers

First-time home buyers usually buy lower-priced houses, because they have no equity in existing homes that they could apply to a new purchase. Buying a foreclosed home would stretch precious dollars. If you aspire to own you first home, your first step is to see how much house you can afford.  Get your credit reports. If it’s been more than a year since you’ve looked at them, you can get them for free at annualcreditreport.com Make sure they’re accurate. Then order your FICO score.  MyFico.com is a good source. Gather your proof of income for the last couple of years as well as records of all your bank deposits and withdrawals for the last couple of months. Then approach a mortgage lender for pre-approval.

To find foreclosed homes for sale, you don’t have to pay for a list. Many lenders like Bank of America are posting their real estate-owned (REO) home listings on their websites. When the bank acquired notorious sub-prime lender Countrywide Home Loans, it also picked up 15,000 distressed homes. As of this writing, Wells Fargo is selling an REO one-bedroom condominium in Las Vegas for $34,900. With a 20 percent deposit of $6,890, financing the balance of $27,920 on a 30-year fixed mortgage at today’s 4.38 rate would yield a monthly payment of $139.48. How does that compare to what you’re paying in rent?

Another free, legitimate source for finding foreclosed homes is homesales.gov. It’s a portal to homes owned by the federal government in all fifty states. Simply click on the state and enter the name of the community where you’d like to live.

Sales of foreclosed homes are usually handled by a single real estate agent, so find one who specializes in foreclosures. Because of an established relationship with mortgage lenders, the agent can often get advanced notice of a property coming on the market.

Once you’ve found a listing, compare the selling price of the foreclosed home with others in the neighborhood. Do your best to inspect it. Many homes have been left to deteriorate. Chances are you won’t be able to hire a professional inspector, so do a visual yourself. Try to get inside. At the very least, examine the exterior for anything that could be costly to repair like a roof with missing shingles or cracks in the facade. Look at the neighbors’ places and see how well they’re maintained. Buying a foreclosure home in bad shape could wipe out any savings you’ve made by purchasing an REO. Remember that foreclosed homes are sold as-is.

There’s not a lot of room to negotiate, so don’t low ball the agent with an unrealistic bid. It’s okay to offer a little less, but be prepared to have your offer outbid.

Getting clear title can be an issue with a foreclosed home, so be certain you get not only lender’s title insurance, essential to get the mortgage, but borrower’s insurance, to protect you. In the event there’s a dispute that goes against the lender, you’d still be able to keep your home.

Investors and foreclosures

Investors can find foreclosures the same way as a first-time home buyer and pick up a rental.  That Las Vegas condo mentioned above would typically rent for around $500. Despite the condo homeowner fees and insurance, you could potentially double your money every month with it.

Many foreclosed homes are sold at auctions. There, investors typically pounce on prime properties with cash. After a quick makeover to bring back a home’s curb appeal, these foreclosures are flipped quickly. Buying at an auction is not the best venue for a first-time home buyer. The competition is fierce. As an investor though, you can get ready to mix it up with your peers  and walk away with a steal.

For more information on the best mortgage rates, visit our mortgage page.

 

Related Stories:

What to Know Before Buying a Foreclosure

Is Foreclosure Ever a Good Idea?

Foreclosure Freeze — What to do if You Bought a Foreclosed Home

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