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What you Must Know about Buying a Foreclosed Home?

Many prospective buyers today are considering taking advantage of the financial benefits buying a home in foreclosure can deliver. Currently foreclosure rates are on the rise and it is anticipated that more than one million foreclosures will be recorded in a single year. While this is certainly a tragedy for the homeowners involved in the foreclosures this can potentially translate to large savings for buyers.

Statistics currently indicate that buyers can potentially purchase properties in foreclosure at up to 25% below the full market value of the home. When a home goes into foreclosure the lender must work quickly in order to recover the money that is still owed on the loan. If the former homeowner had any equity in the home this means the buyer may be able to take over the home with a savings.

With the number of foreclosed homes on the rise; however, it is important to understand that while it is still possible to save money by purchasing a home in foreclosure you should not expect the savings to be as substantial as they have been in the past. This is primarily due to the fact that a large number of the newest foreclosures are arising from issues related to the subprime mortgage market. This generally occurs when homeowners find they can no longer afford their mortgage when it rises after their initially low interest rates suddenly jump dramatically.

Typically these homeowners have little to no equity in their properties and as a result the lender must try to recover a larger percentage of the mortgage amount.

You can counter this problem by taking the time to do some research ahead of time. The first step is to do a title search on the property. This is an important step to ensure that the home you are considering buying doesn't have more than one mortgage. Problems can arise when you purchase a home believing that a single mortgage has been paid off and find out after the fact that a second mortgage remains which still must be resolved before you can actually take ownership.

It's also important to perform a search to be aware of any other types of liens that might exist on the property. Be aware that once you purchase the property you can become responsible for those liens and that could translate to large expenses.

You also need to take into consideration that while it is possible to save money by buying a home in foreclosure, those savings could easily be consumed by repair issues if the home is not in good shape. Remember that you are buying the home "as is" and that means that you will become responsible for any repair issues that exist. In many cases you may not be able to have an interior inspection of the property performed so it's important to make sure you are prepared to handle any possible repairs related to homeowners who either couldn't afford to maintain their properties or who may have vandalized the property as a way of dealing with their anguish over the foreclosure.

When considering buying a home in foreclosure consider which method will work best for you. There are three different ways you can approach purchasing a home in foreclosure.

One way to handle the issue is to purchase a home from a real estate company. This is commonly known as a REO or Real Estate Owned property. This is the least risky approach to purchasing a foreclosed home because it gives you the chance to inspect the home, ask for a clear title and take peace of mind in knowing the sale is subject to your being able to obtain a mortgage. Homes also tend to be in better shape than with other options. Of course, there is a trade-off for all of those benefits. Generally, you won't be able to take advantage of as much of a savings as with other options.

Another option would be to purchase a property at auction. This type of transaction can vary from one area to another. In some locales they are held right in front of the foreclosed property while in other regions they might be held on the steps of the courthouse steps or even in the county clerk's office. Keep in mind that the most risk is attached to auction sales; however, these sales also offer the most benefits. Buyers can potentially save up to as much as 40% on such foreclosures.

It should also be taken into consideration that with this type of transaction you won't be able to inspect the home in advance and you must be prepared to pay in cash, typically using a cashier's check. You may also encounter problems such as the current homeowner out and out refusing to move out of the property. Once you have purchased the home it will be your responsibility to evict the former homeowner and you may need to get law enforcement officials involved.

Finally, you might consider going the pre-foreclosure route which involves purchasing a property directly from the homeowner before the bank is able to actually foreclose on the property. This option can be particularly attractive to buyers because they typically involve a lower capital expenditure and allows you to obtain more information about the home up front that would typically be available. This gives you the chance to actually inspect the house as well as have a title search conducted. To finalize the transaction the owner signs the need and the property becomes yours along with the mortgage. It then becomes your responsibility to keep the mortgage current as well as provide the bank with any back payments that are due.



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