Tips for Buying a Foreclosure
Posted by moneyscrapbook56 on July 27th, 2020
Buying a foreclosure is a great way to get the home you want at a more affordable price, but what you see is not always what you get. Buying a foreclosed home is different from buying a conventional home. There is a lack of transparency, fewer financing options and different expectations after the sale finalizes. Foreclosures aren’t for everyone. First time homebuyers need to be especially aware of potential pitfalls often associated with them.- investing
To avoid disappointment, costly repairs and other obligations, there are a few things that you should know before you buy, and a couple of tips you should keep in your back pocket to make the most educated choice possible.
What is a foreclosed home?
Buying a foreclosed home offers you a way to buy a home at a discounted price, but it also means that you may not have all the important historical information regarding repairs, structural damage, infestations or other issues. The lack of historical information makes foreclosures less attractive to some buyers, but this type of transaction is a way to find a good deal on a home — if you know what to look for, that is. If you want to buy a foreclosure, be prepared to do your homework and get professional advice before you buy.
Types of foreclosed homes
During pre-foreclosure, the homeowner can sell the home outright or via short sale — if the lender agrees to accept a lower settlement for the mortgage — to avoid going into foreclosure. If neither option works, the lender takes possession of and forecloses on the home.
After foreclosure, the home becomes an REO property, which is just another way of saying that the bank or real estate company owns the home. The lender can then place the home up for auction to recoup its loss. If the home doesn’t sell at auction, the mortgage lender will list it for sale on their website or with a real estate agent.
How to buy a foreclosed home
1. Don’t skimp on the inspection.
2. Find an experienced real estate agent.
3. Weigh the benefits.
4. Get preapproved for financing.
4. Bid competitively.
Risks of buying a foreclosure
Roger Whitehouse, owner and realtor at Riverside Realty, warns buyers to beware of foreclosure pitfalls.
“For the most part you are totally on your own because most foreclosures do not disclose anything about the listing,” Whitehouse said. “You are purchasing a listing that could and usually does have multiple issues that are often quite costly to remedy.”
”A home sold at a trustee sale or a sheriff sale may have hidden tax liens or other debt that you have to pay,” Phil Georgiades of VA Home Loan Center said. “I have seen an investor purchase a home that had 0,000 tax lien on it. This almost bankrupted him.”
Always arm yourself with knowledge. Have an inspection and title search done and most importantly, don’t rush the process.
Loan options for buying a foreclosed home
If conventional lending doesn’t work for you, then there are a few alternative financing options available if you qualify. You can finance REO homes with VA loans, USDA loans or FHA loans. Be aware, though, that sometimes homes must adhere to HUD or other policy restrictions in order to help meet financing requirements, even with those types of loans.
If an approved home needs repairs, you might also be eligible for a rehab FHA loan under a 203(k) loan, which can give you up to an additional ,000 for necessary repairs and renovations — all on the same loan as your FHA mortgage. Fannie Mae also offers some financing opportunities for foreclosed homes as well through its HomePath program.
If you’re looking to turn it into an investment property or a secondary residence, you may need to look at alternative financing options because many of the lenders who will fund foreclosure purchases have primary residency as a requirement for their loans.
The bottom line
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