Foreclose Property Home Buying Process
When searching for a new home, it’s possible that you might come across a foreclosed property. Before deciding to purchase a foreclosed property, there are a few things to consider first.
Types of foreclosure
Foreclosure happens when a homeowner is no longer able to make mortgage payments and is forced to leave the home in the possession of the bank. There are four different forms of foreclosure.
- Pre-foreclosure: Also referred to as a short sale, this occurs when a homeowner still owns the home and knows that foreclosure is a possibility. It can be considered a preventative measure, on the seller’s part, to foreclosure. However, short sales often take a long time to close.
- Auction: Auctions typically require you to have cash on hand. There are a lot of risks associated with purchasing a foreclosed home via auction. Most notably, there may be liens on the title or various repairs needed.
- Post-foreclosure: This is also referred to as a real estate owned property (REO). In this situation, the bank or lender takes possession of the property. These are likely homes in which the home went to the bank after an auction and will have a real estate agent associated with them.
- Government-owned: Government-owned homes are sold as is. This means that any repairs that need to be made fall on you. However, the government may repair any structural needs. You can place an offer to inspect the home.
Purchasing a foreclosed home
Purchasing a foreclosed home happens in five steps.
Work with an agent
A real estate agent can help you a lot during this process. A real estate agent has access to the multiple listings services and can find homes that best match what you are looking for. Additionally, they can walk you through any difficulties you may incur when purchasing a foreclosed home. They can research what homes are selling for and the property value and check your county assessor’s office for ownership and pricing information.
Your credit report is especially important when purchasing a foreclosed home. Make sure that your credit score is in good shape before starting this process.
A pre-approval gives you more power in the home purchasing process. It shows that you are able to pay for the home in question and that your income and assets have been verified. Even if you get a pre-approval from one lender, when purchasing a bank-owned property, it’s possible that the specific bank may want you to get pre-approved by their company as well. This is typically done to confirm your eligibility for the home.
Get an inspection
Since you are purchasing a home as is, inspections are a very important part of buying a foreclosed home. Many times, there is little-to-no room for negotiation. Any repairs needed will be your responsibility.
Make an offer
If you are purchasing a short sale, the real estate agent will present the offer to the individual who owns the home. For an auction, contact the trustee to ask any questions about the house before the auction. A bank-owned auction will present your offer directly to the listing agent. Make sure to get title insurance to protect your rights to the home in the future.