In 2021, there was a 68% increase in foreclosure filings in the United States.
The process of buying a foreclosed home is now easier than ever. You can find foreclosed homes on the multiple listing service (MLS), through online real estate searches, and in many other places. Buying a foreclosure could be a smart financial move, but only if you play it smart.
Here are five tips you can use to help you out.
1. Consider Buying a Pre-foreclosure
There are a few different types of foreclosures, such as pre-foreclosure properties.
A property falls into this category if it’s before the home is listed at an auction but after mortgage lenders have notified the borrowers that they’re in default. Lenders issues a notice of default if homeowners can’t make their mortgage payments.
Pre-foreclosure is the first step in the foreclosure process. Buying a pre-foreclosure home means you can pay less than the market price, and you’ll face less competition.
2. Know the Difference Between a Short Sale vs. a Foreclosure
Short sales are when an owner sells their home for less than what they owe on their mortgage. Short sales are a voluntary process, while foreclosures are not voluntary.
During a foreclosure, lenders legally seize a property. Short sales do tend to take more time, as there is more paperwork involved. Sometimes, it can take up to a whole year.
Foreclosures are faster processes, as the banks want to recoup lost money as quickly as possible.
3. Find a Lender and Real Estate Broker
Before buying a foreclosure, you’ll need a real estate agent. When hiring a real estate agent, there are certain qualities you’ll want to consider.
You’ll want a real estate agent that has experience working with REO agents. REO stands for real estate owned, and lenders work with REO agents to find buyers.
You’ll also want a preapproval letter from a lender unless you plan to pay in cash. Lenders will assess your credit score and your income.
Don’t make the assumption that the bank selling the property will also finance the mortgage.
4. Look at Comparable Properties
Before buying a pre-foreclosure or a foreclosure property, make sure to look at the sales prices of comparable homes. These comparable properties, or comps, will help you to make a competitive offer.
If a home is priced too low, it’ll have multiple offers. If it’s priced too high, you can adjust your offer.
You should also check into how quickly comparable homes are selling, as they could get snapped up depending on location.
5. Remember Properties Are Sold As-Is
Keep in mind that homes sold at foreclosed auctions are usually sold in as-is condition. Don’t expect to get any discounts if the house needs repairs. Repairs are almost always inevitable, so you should have some good contacts on hand.
Knowing the right tradespeople can help you assess and repair necessary damage such as mold or leaks.
Are You Considering Buying a Foreclosure?
If you’re considering buying a foreclosure, make sure to keep these tips in mind. If you do, you can acquire a great property that may have been out of reach before.
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