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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