36,617 properties were filed for foreclosure during the first quarter of 2023. That’s a 20% rise from the previous month and a 10% up YoY. This means homeownership is more accessible and comparatively cheaper.
Foreclosed homes can be a good opportunity for you:
- If you wish to buy a home at a low price.
- If you intend to make a profit by selling it later at a higher price.
Buying a foreclosed home could be a tedious task. It is important to know what you are looking for. In this blog, we’ll look at how we can buy a foreclosed home in America.
🚀 Key Takeaways
- Types of Foreclosed Homes: The four types of foreclosure are pre-foreclosure, short sale, sheriff’s sale, and bank-owned.
- What are the Federal Programs for Homebuyers: You can opt for USDA Loans or Veterans Affairs Loan programs.
- Why Foreclosed Homes are Cheaper?: Lenders or banks sell foreclosed homes at discounted prices to recoup their losses from the defaulted mortgage, resulting in cheaper prices for buyers.
- When is the good time to buy a Foreclosed Home?: Now is a good time to buy a foreclosed home. According to Atom, 95,712 properties underwent for foreclosure in the first quarter of 2023.
What Does Foreclosure Mean?
Foreclosure is a legal process of recovering money on a defaulted loan. When a borrower fails to make their mortgage payments, the lender auctions off the borrower’s home to recover the unpaid amount.
6 Steps For Buying a Foreclosed Home
The process of buying a foreclosed home depends on the buyer and the owner of the foreclosed property.
Here are the basic steps of buying a foreclosed home:
Step 1: Know Your Foreclosure Options
There are 3 ways you can purchase a foreclosed home:
Through Short Sale
The borrower can access a pre-foreclosure home for sale via short sale. In a pre-foreclosure, the homeowner still retains ownership of the house and the foreclosure is not complete yet.
In the case of a short sale, you have to get approval from the lender not from the homeowner. This approval process can be time-consuming, and you may experience delays while waiting for the lender to approve your offer.
Foreclosure properties are often sold through public auctions. These auctions are typically conducted by the county sheriff’s office or a third-party auctioneer.
Interested buyers can bid on the property, and the highest bidder usually wins the auction. You must do thorough research and due diligence before participating in a foreclosure auction.
When a foreclosure property does not sell at auction, it becomes real estate owned (REO). The bank or lending institution takes ownership of that property.
These properties are then listed for sale through the bank’s real estate department or an assigned real estate agent. Contacting banks directly or monitoring their websites for REO listings can help you find foreclosure homes for sale.
Step 2: Find Foreclosed Homes for Sale
Pre-foreclosed and foreclosed properties can be found on MLS and real estate websites like Auction.com, Foreclosure.com, and RealtyTrac. Here are other ways to search for a foreclosed home:
- Print Publications: You can find huge data on foreclosed properties in local newspapers.
- Government Agencies: The government agencies like The Department of Housing and Urban Development, Fannie Mae, and Freddie Mac also sell foreclosed homes.
- Home-Auction Websites: Websites like Auction.com and Hubzu, feature foreclosed homes. Ensure you check their reviews from previous clients.
Step 3: Hire a Real Estate Agent
The process of purchasing a foreclosed home listed on MLS closely resembles the traditional process of buying a house.
However, navigating a short sale, dealing with an auction, or figuring out how to make an offer can feel overwhelming. An experienced real estate agent can be an asset for you.
Step 4: Get Pre-approved for a Mortgage
As soon as you find an agent, get pre-approved for a loan. A mortgage pre-approval tells you how much you can borrow for a home. Here are some other financing options for buying a foreclosed home:
- 203(k) Loans: It lets home buyers roll the costs of both purchasing a home and renovating it into one mortgage.
- HomePath ReadyBuyer: HomePath is a Fannie Mae program that gives you financial assistance. With a conventional mortgage, you can buy a home with a down payment as low as 3%.
- HomeSteps: Through HomeSteps, Freddie Mac sells its foreclosure properties.
Step 5: Get an Appraisal and Inspection
Home appraisal and home inspection are crucial when buying a foreclosed home. You get to assess the property’s condition and determine its value.
Appraisals determine a property’s value. It helps determine if the property’s asking price is aligned with its fair market value, conditions, and local housing trends.
A home inspection is a comprehensive evaluation of the property’s physical condition, including its structural elements, systems, and potential issues. It helps identify any repairs, defects, or safety concerns that might require attention.
Step 6: Purchase Your New Home
Check out your home appraisal and inspection report, then decide whether a home is right for you or not.
Get in touch with your mortgage lender to complete the loan process, especially if you have the necessary funds or expertise to carry out any required renovations.
Your real estate agent will assist you in submitting your offer and getting ready for the closing procedure.
Pros of Buying a Foreclosed Home
Here are some benefits of buying a foreclosed home:
- Low Cost: Foreclosed homes are often priced lower than other homes in the area. This is mainly because lenders aim to sell them quickly to recover the loan amount and interest.
- Quick Closing Process: Foreclosures are typically quick transactions. On average, a foreclosed home takes about 30 days to sell, from the list to close.
- Re-Sale Profit: If you plan to live in the foreclosed home for some time, you can sell it later at a higher price. Based on 2019 data, home sellers made an average profit of 34%.
- Expand Your Investment Portfolio: An investor looking to fix and flip a home can make a great return on their investment.
Cons of Buying a Foreclosed Home
- Extensive Paperwork: Foreclosure closing involve significant paperwork, which isn’t always as timely as a buyer would like.
- Repair Cost: Lenders want to recover their money as soon as possible. Which means, they will sell the property as-is. If you don’t have the cash to repair the house, don’t buy a foreclosed house.
- Additional Costs: Auction properties often have taxes and liens attached to them. These liens can add on to your expenses.
- Too Many Competitors: Foreclosed homes are priced low and sell quickly. You can expect competition from nationwide investors and house flippers.
The Bottom Line
Buying a foreclosed home can be tedious considering the additional paperwork it requires. Not to forget that many foreclosed homes could have structural issues.
Having said that, foreclosed homes are a unique opportunity for buyers who wish to buy a home at a low price. Buying a foreclosed home could be a great investment in the years to come.
Frequently Asked Questions
1. What is the cheapest way to buy a foreclosed home?
The cheapest way to buy a foreclosed home is through an auction. Research the property thoroughly. Be prepared to pay in cash or have pre-arranged financing.
» How To Buy a Foreclosed Home: Check out the step by step process of buying a foreclosed home.
2. Who should buy a foreclosed home?
Foreclosed homes are ideal for investors or home flippers. Any home buyer willing to renovate the property and seek a good deal should also consider buying foreclosed homes.
3. How to buy a foreclosed home at auction?
To buy a foreclosed home at auction, you will have to: research properties, obtain financing, attend the auction, place bids, and complete the necessary paperwork at closing.
4. How to buy a foreclosed home from bank?
To buy a foreclosed home from bank, you will have to: Find bank listed homes, get pre-approved, make an offer through an agent, and complete the necessary paperwork at closing.