Tips for Buying a Foreclosed Home
You can get a great deal on a house by buying a foreclosed home. You can even help your neighborhood thrive. Foreclosures bring down property values in the whole neighborhood, so buying them up helps. For first time homeowners, foreclosed houses can be their best chance at buying a house they can afford. However, if you don’t do enough research, foreclosures can be more trouble than they are worth. Here are some tips to buying foreclosed homes.
See A House In-Person
Foreclosed homes are sold as is, so bidding on a foreclosed house you’ve never seen in person is a huge risk. You might think you have found a bargain, only to find out the sheer amount of repairs and updates you need to do will negate any money you have saved by going the foreclosure route. If you by a house long-distance, try to find someone local, such as a friend of family member, who can scout the property for you. You want to know exactly what you’e buying.
When we budget, we often focus on the mortgage. With foreclosures there is always additional prices. Most foreclosures are older homes that need a lot of repairs done on them. Many people like fixer uppers because they can put their own stamp on it. But you really need to crunch the numbers and see how much those repairs are going to cost. This will help you stay closer to your budget. Keep in mind that some repairs are expected and others will come as surprise. The more accurately you can estimate the obvious repairs that are needed, the better you’ll be able to create a budget that can accommodate unexpected repairs.
Loan Approval Must Come First
Foreclosures are also called real-estate owned properties because they are owned by a bank. This can complicate things when it comes to loan. You’re not going to get your loan from the same bank that owns the house. Before you seriously start looking at foreclosure properties find a letter and make sure you are pre-approved for a loan. This will save you a lot of stress later on.
Use an Agent
Your chances of buying a foreclosure goes up if you use a quality real estate agent. The problem with homes that are owned by a bank is that tend to sell faster than regular homes. Using an agent can give you an edge. The real estate agents often work closely with banks so they probably already have a working relationship with the bank that owns the house. A good agent will understand exactly what you want in a home and make sure you stay in your budget.
Consider the Season
Some foreclosed homes sit unoccupied for a few months, and this can create all kinds of headaches. This is especially true if it sits in the winter and the area is up north. The pipes could be broken, for instance, and you could end up buying a house that floods on you on day one. If a house hasn’t been properly winterized, water can leak into walls and you could end up with a house that has mold in it. Most of these issues can’t be seen until you do a proper inspections, thus it can be hard to know what you’re getting yourself into when you buy a home that hasn’t been winterized.
An HUD home is a house that has been foreclosed that previously had a government-backed mortgage. HUD stands for the Department of Housing and Urban Development. Local governments have first picks when it comes to HUD homes, but after that they’re open to the public. Usually, an HUD home will go on the market six months after foreclosure. You can find a listing of HUD homes on the HUD home store website. Generally, these homes will be better taken care of then a normal foreclosure. Most will also be properly winterized. They also have better and more up-to-date appraisals. Thus, there are a lot of advantages to buying an HUD home.
Look at Comps
While we often assume that foreclosed homes will be cheaper, you still want to look at comps just as you would when you buy a regular house. Banks sometimes price a house way too low, but other times they price it too high. Either way, looking at comps is useful. If the price is extremely low, there are going to be a lot of offers, so you will need to come in with a higher bid if you have any shot of buying the house. It helps to know as much you can about what houses in the area are worth.
Consider Your Purpose
Some people buy a foreclosed house as their new home, some want to flip it and resell it. Others think they can resell the property at a premium. It is possible to buy a house when the price is low, resell it when the market takes a turn for the better, and make a profit. However, if you’re counting on profiting from a quick sale, you might be getting your hopes up. Often these profits are lower than you expect. Plus, in most towns, you can’t sit on a property without taking care of it. Unmaintained homes lose value fast, and you’ll end up paying a lot in penalties, as there are typically rules against untamed lawns. Thus, reselling homes can be a good investment, but it can also be a real headache.