Buying A Foreclosed Home
Have you found your ideal home but discovered it is a foreclosure sale? Unsure how to navigate this process or whether it is a good idea? You’re not alone, but with careful consideration and expert advice from a qualified REALTOR® buying a foreclosure need not be a disaster.
What Does Foreclosure Mean When Buying A House?
Foreclosure in real estate refers to a house that has been seized by the bank that provided the mortgage on the property. Foreclosure typically happens when the homeowner fails to make repayments on the loan for a period of months. It can also occur if the borrower fails to meet the terms and conditions set out in the loan documents.
To recoup the cost of the loan the bank undertakes to sell the house, without the involvement of the owner – placing it in foreclosure. They are permitted to do this due to a lien in the mortgage contract that states the bank may take ownership of the property should the loan repayments fail to be made.
Is It A Good Idea To Buy A Foreclosed Home?
Buying a foreclosed home has its pros and cons. The process does require a little more work than buying from an owner, however it can certainly be worth it to own your dream home.
Advantages Of Buying A Foreclosed Home
The main advantages to buying a foreclosed home are:
- Fast settlement with fewer title concerns, when buying from an owner you rely on them to discharge the mortgage and any residual taxes. This can create delays or even cause the sale to fall through. With a foreclosed home, the bank has already cleared the title for a simplified settlement.
- Lower prices, as the bank is solely interested in rapidly recouping their losses rather than making a profit, foreclosed homes tend to be cheaper than others in the area.
- Standard loan options, so long as the purchase is not a cash-only auction. According to a loan specialist:
“As long as the home you’re considering is in livable condition, you can get a conventional loan or a government-backed VA loan, FHA loan or USDA loan to buy it. Government-backed loans can make homeownership more affordable.”
Potential Disadvantages Of Buying A Foreclosed Home
Some disadvantages and watchpoints when buying a foreclosed home include:
- What you see is what you get, banks will rarely agree to do repairs on a foreclosed home. Should it have been poorly maintained or empty for some time, this can mean a hefty repair bill once you take ownership.
- Redemption period, some states allow up to 12 months for the homeowner to rectify the default on the loan. This means that the house may never actually progress to being for sale even if it is listed as being in foreclosure.
- Squatters rights, because some homes sit in foreclosure for months and sometimes years, you may find that squatters have moved in. Should the home you purchase have squatters in it, you will need to engage a lawyer to legally evict them. Creating added stress, expense and months of negotiating.
How To Buy A Foreclosed Home
If you have made it this far and decided the home in foreclosure is worth pursuing, you will need to do the following:
- Hire a qualified and experienced REALTOR®, banks usually hand the sale off to estate-owned (REO) agent who will then work with your buyers agent to finalize the sale. Having an agent in your corner that is experienced with foreclosure sales is a must. They can help you find a great foreclosure, work through the REO’s buying process, negotiate the price, arrange pest/building inspections and appraisals as well as handle all the paperwork.
- Ensure you have pre-approval for your mortgage. Just as with any home purchase, it is important to have your loan pre-approved. This helps expedite the purchasing process and ensures you do not offer more than you can afford.
- Arrange for an inspection and appraisal, your lender will require a letter of appraisal to finalize your loan, this helps them ensure you are not spending more than your home is worth. Inspections are always important when buying a home, but in the case of a foreclosure, its paramount! Inspection reports can also help you negotiate the asking price if significant repairs are required. As mentioned above, your REALTOR® can help to arrange these.
- Finalize the sale, once you have completed the above steps and considered all the information, it’s time to put in an offer! If you decide the home is right for you and your offer is accepted, your REALTOR® will then assist you with closing the sale and completing all the required paperwork.
Why You Need A Realtor When Buying From A Bank
Negotiating with a bank to purchase a foreclosure is an entirely different process than negotiating with an individual. Every bank will have its own timeline and procedures to follow for foreclosure, they will also have their best interests at heart. Selecting a buyers agent you are comfortable with means you have someone to navigate the challenges and pursue what is best for you.
Even in a standard sale, a great REALTOR® is essential for minimizing stress and handling the details. With a foreclosure, the waters can be muddied and without assistance, you may find yourself in difficulty or worse, end up with a nightmare home.
Best of all, your REALTOR® knows the market and can help you buy your home at the best possible price. This is particularly important if you are buying it to ‘flip’ or as an investment. A bank will likely have zero actual knowledge about the specifics of the property and its condition. A buyer’s agent will get to know it inside out and back to front, helping you negotiate the best possible price.
Expert Buyers Agents In North-Western Arkansas
At The Brandon Group, we consider it a privilege to provide our knowledge and expertise for clients pursuing a foreclosure. Our goal is to have you settled in your home, with minimal stress and no added complications. Let us handle the bank and the essential checks so you can focus on the excitement of buying a home.
Don’t let a foreclosure sale put you off, engage a buyers agent through The Brandon Group and let us guide you through. Call us today on (479) 787-3080.
