Tuesday, May 1, 2012
What to Consider When Buying a Foreclosure
How to Find Foreclosures
The days of tirelessly tracking down foreclosed properties are gone. Nowadays, Realtors are happy to have foreclosed homes as listings, as it means increased traffic from smart buyers. If you're using a Realtor (and I obviously recommend you do), they should have tools at their fingertips to weed out foreclosures and should be able to produce a list for you within a few minutes. If they say they can't, you might want to try someone else. If you aren't using a Realtor, the internet is your best tool. Search for your desired area, and look for the words "foreclosure" or "REO". On top of that, there are specific websites that you can search government foreclosures: Hud Homes, HomePath Homes, and HomeStep Homes. All of these have simple, easy to navigate websites to find a foreclosed property.
Financing Your Foreclosure
Keep in mind, your lender will be using the foreclosure as collateral, should you not be able to pay your mortgage, at least they will have a reasonable asset to cover the amount owed. That being said, there are some homes that are in just awful shape. When using government backed financing like FHA and VA loans, they are unlikely to loan against homes in poor shape. They have strict guidelines to protect their collateral, but if you're able to use FHA/VA financing, the down payment is much less. Conventional lending requires a larger portion for down payment, but they are less strict with the properties they'll lend against. There are trade offs for each type of financing. Speak with your lender or mortgage broker for more information on financing your foreclosure purchase.
Writing the Offer
Negotiating the Transaction
I mentioned that the bank will drive home the fact that the home is being purchased "as-is". That is not always the case. Should your inspection uncover some issues that are mandated by state law, or a health/safety issue, you may have the opportunity to have the bank pay for those issues to be cleared up. If the problem is too big, then walk away. Please don't buy a money pit. Similarly, if there is an issue that the appraisal finds that would prevent your lender from loaning against the property, the bank may end up paying for that as well.
After all the hoops have been jumped through, and all the due diligence performed, you'll be headed to closing. Closing can be extended or delayed because sometimes banks move a little slow or need a signature on some paperwork that was missed. My advice: roll with the punches. You're getting a relatively nice home at a great deal. You can't beat that!