Personal Finance 

How to Buy a Foreclosed Home

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For Sale By ForeclosureAll of us are looking for a bargain and when we’re in the market for what will likely be the largest purchase of our lives, finding the best deal and keeping our payments low is often worth the unknown and potentially dangerous territory of foreclosed homes.

We’ve all heard of foreclosures but most people, when in the market for a new home, still take the traditional path of buying properties that are current on payments instead of dealing with a bank. For those who don’t have to move immediately, taking the time to purchase a foreclosed home can represent a large savings. Here’s how to do it.

Check the Listings

Not only are there realtors who specialize in foreclosed homes, Realtytrac, a website often mentioned by financial media outlets, has a large database of foreclosed homes. If you’re serious about a foreclosed home, paying the subscription fee to Realtytrac is money well spent.

Get a Realtor

If you don’t have a realtor already, hire one who specializes in foreclosed homes. Once you find some perspective homes, drive by them on your own and if you like the area, set up showings. Many of these homes will need major repairs since the former owners didn’t have the money to maintain the property and it’s easy to find stories of evicted owners intentionally damaging the property.

A realtor can help you determine when the needed repairs will cost more than the savings you would receive by purchasing a foreclosure.

Title Check

Sometimes purchasing a foreclosed property involves dealing with owner while other times a bank or other agent is authorized to sell the home. Regardless, do a title search to make sure the house hasn’t been condemned or there are outstanding liens. If the owner had a home equity loan in addition to the mortgage, this along with other information found on the title search may make the home more trouble than it’s worth.

Make an Offer

This is where a realtor familiar with foreclosures along with an attorney to review the contracts may be necessary. Foreclosure differs from state to state making document requirements non-standardized. If you’re dealing with the bank, expect to not have much room to bargain since the price is already marked down. Also expect for the process to go very slow. Some people report waiting months to get a response from an offer. If you’re dealing with an owner still in the home, they may be willing to accept your low offer to get out of the house but often, it is subject to bank approval.

Have it Inspected

Even a bargain price doesn’t make up for a $20,000 roof repair, active termites, foundation problems, or other high dollar repairs. Pay for a complete home inspection and back out of the deal if major problems are found. Minor problems should be expected but large scale repairs are rarely worth the hassle and expense. If the offer is accepted and the inspection goes well, you agent or attorney can prepare the paperwork.

Bottom Line

Remember that foreclosed homes can be a great value but along with the value comes added issues. If you’re not a do it yourselfer when it comes to home repairs and you’re the type that likes to move in to pristine properties, foreclosed homes may not be right for you but if you don’t mind having a work in progress for a short time, the bargains are out there waiting for you.

(Photo: sercasey)

{ 5 comments, please add your thoughts now! }

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5 Responses to “How to Buy a Foreclosed Home”

  1. Ben says:

    Great article, thanks !

  2. Goner says:

    Didn’t notice the IAFF reference there until a closer look at the picture.

    What a laugh all that was… really wonder whatever became of ‘sercasey’ AKA slowflake.

  3. Goner says:

    And speaking of that… perhaps sercasey’s pictures should not be used in any post offering ‘how to’ advice.

    This does not apply to ‘how NOT to’ advice tho…

  4. Marilyn says:

    Just an aside. My daughter has tried to buy at least three short sales and they have all fallen through. Banks are not set up to make the short sale work. I imagine desks piled to the ceiling with loan applications while frantic home owners are trying to get their houses sold–never happens.

  5. Short Sales can be a great buy. The owners are usually still in residence so the homes are generally in better condition than a bank-owned home, which could have been sitting empty for as much as 2 years these days. Short sales take a little longer from contract to close, but banks are much more interested in making them work than they used to be a few years ago. They’ve discovered they lose about 15-20% less on a short sale than on a foreclosure. And of course, some banks are much easier to work with than others. In our market in Frederick Md, there are a lot more short sales (16% of inventory) on the market than there are foreclosures (3% of inventory). Having an agent who is experienced & trained in short sales makes all the difference. Even as a buyer’s agent, they can vet the particular home and the listing agent. I wouldn’t overlook short sales.

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