The Process of Buying a Foreclosed Home From A Bank
Homebuying is an expensive venture, but you could save yourself a lot of money if you invest in a foreclosed home. Sometimes, homeowners have unfortunate circumstances, and they allow their homes to go into foreclosure status. Those homes are then made available to interested parties. We wanted to give you a little information about buying a foreclosed home if you want to consider it as an option. Read through it and see if it's something you'd be interested in doing if you're looking to buy a house.
The Process of Buying a Foreclosed Home
A foreclosed home is a property that the homeowner has defaulted on. A lender has provided the homeowner with a loan to purchase the property, but the borrower has not kept up with the payments for some reason or another. Usually, the lender gives a customer a certain amount of time to catch up with the payments. It may choose to sell the home at an auction if the homeowner can not recover and catch up on the payments. You might be able to buy a house in any stage of foreclosure, but we'll touch on that later.
Types of Foreclosed Homes
There are different types of foreclosed homes you might be able to purchase. The kind of sale you get depends on who loaned the homeowner the money to buy the home and what stage of foreclosure the house is in.
A pre-foreclosure home is a home that has not yet been sold at an auction. This kind of home is still in the initial stages of foreclosure, but the homeowner has time to come up with the money to pay the amount they're behind rather quickly. You can purchase a home in this stage if the homeowner wants to sell it before it goes to the auction. In this stage, the homeowner can still negotiate with the lender and get out of having an adverse credit history if they can sell the home for an amount that's sufficient to the lender.
You can also purchase a foreclosed home that's being sold at a sheriff's sale auction. Properties at these sales are severely in default to the point where the homeowner has passed the grace period. The lender is now allowing the home to be sold at an auction to recover as much of their money as possible. You can visit the auction and go through the process of bidding on a foreclosed home at that time. The home will go to the person who bids the highest amount. Be prepared to enter the auction with a decent amount of money saved. Bidding wars can get pretty stressful when more than two people desire to own a particular property.
A short sale is another type of foreclosed home you can buy. However, the house doesn't necessarily have to be in default or in the foreclosure process for the homeowner to sell it. Sometimes, people need to relocate, and they want to sell their homes quickly and get out of the mortgage agreement. In a short sale, the bank agrees to allow the homeowner to sell the home for an amount that is less than what they owe on the loan. They may or may not forgive the balance, but that will have nothing to do with your purchase. You could end up with a very sweet deal if you come across a short sale home when you're buying your first home.
Another type of foreclosed home you might be able to buy is a real estate owned property or an REO. An REO is a foreclosed home that no one purchased at the auction. The lender's REO department then took possession of the house. You have an excellent chance of getting an amazing deal on a home if it has gone all the way to REO status. You can use resources such as Foreclosure.com to find a list of properties in your area.
HUD homes are government-owned properties that have been placed in foreclosure after the owners defaulted. The government owns these homes because they guaranteed the loans. The homeowners may have had Federal Housing Administration loans, or they may have gotten their loans from the Department of Veteran's Affairs. In that case, buying a foreclosed home will be a little bit more of a process for you. You have to contact a broker who is registered with the government to purchase one of these properties. You can find out more information on these homes by contacting the U.S. Department of Housing and Urban Development. You may be able to get assistance purchasing such a home.
How to Qualify to Buy a Foreclosed Home
Qualifying to buy a foreclosed home really depends on the way you intend to purchase it. You can find information about upcoming auctions in the local newspaper. The ads will tell you where the auctions will be held. You can call the auction site to find out the specifics of what you need to bring when you come to the auction. Some areas require that the bidders bring a certified check for at least $5,000 because they want to know that you genuinely intend to purchase a home. You may also have to pay for the house within a relatively short amount of time. You might have 30 days to pay the balance on the home if you win it. Some auction sites require the winning bidder to pay for the home the same day. You must do research and find out how the auction works before you dive in headfirst. You may even want to attend a few auctions as an observer just to see how the whole process goes. You don't want to be an amateur when you go there to buy a home you really want. You'll want to know the ins and outs of the process and how to work your bidding magic.
For short sales and pre-foreclosures, you'll need to qualify for a mortgage loan the same way you would any other time. You have to have decent credit to get approved for a mortgage. You have to have a low debt-to-income ratio, good income, and proof that you have stable employment. Furthermore, you'll need to have a down payment for the home. That could range from 0 to 20 percent, depending on which way you want to finance it. You'll need a 3.5 percent down payment if you're going to use an FHA loan, for example.
Where to Find Foreclosed Homes
There are several places you can look if you want to find a foreclosed home. One place you can look is in the local newspaper. You'll find information about sheriff sales and auctions there. You can also get the information from a realtor or real estate site. Alternatively, you can search for government listings on the governmental entity's site.
How to Purchase a Foreclosed Home
Buying a foreclosed home is a process, and you'll need to take your time and do it right. Follow these steps, and you could be the proud owner of a foreclosed home very soon.
Save your money
The first two steps in the process involve deciding how much money you can spend on a home and saving your money to do so. We've already mentioned that you'll need to save a down payment. The more you put down on the home, the less your monthly mortgage payments will be. Your goal should be to put down 20 percent. We understand that that's not always possible. Make it 10 percent if you can. If not, then save at least save 5 percent of the amount you intend to spend on the home. You will also need to save yourself some additional thousands for closing costs and other fees that might come up along the way. It's better to have too much money during a time like this than not to have enough.
Think About the Type of House You Want
Just because you're buying a foreclosed home doesn't mean that you have to rob yourself of the opportunity to own the home of your dreams. Sit down and think about what kind of home you want. How many bedrooms and bathrooms do you desire? What style of home do you want? You'll need to know all this before you start searching for foreclosure homes.
Tighten up Your Credit
The chances are high that you will have to apply for financing to buy a home. If that's the case, then you'll need to tighten up your credit before you buy a foreclosure home. Boosting your credit will ensure that you get the most reasonable interest rates. You can do various things to boost your credit score. Paying down debt, ceasing your credit card purchases, and cleaning up your credit report are a few ways to do it. Order your annual credit report from all three bureaus and check for errors and inaccuracies. Dispute anything that doesn't seem correct.
Search for Homes
Once you have your money and your perfected credit score, you can start searching for suitable homes that meet your requirements. Try to schedule an appointment to look at the homes. You might not be able to look at a foreclosure home, but you can still drive by it and have a look at the surrounding neighborhood. Make sure it's a neighborhood you want to live in, and it has everything you'll need to survive. For instance, you might want to check for nearby grocery stores, schools, hospitals, and so on.
Make an Offer
Once you get the information on the foreclosure sales, you can make an offer. Stay within your financial boundaries if you're going to buy the home at an auction. Decide how much you want to bid, and don't let bidding wars get the best of you. They can sometimes be very intense if another party sees an investment opportunity in the home you want. Stay calm, relaxed, and collected during the entire process. Don't seem too anxious to get a specific home. This is a perfect time to use a poker face if you have one. Bidders will be more aggressive if they know you want a home badly.
Close
The final stage is closing up on your home purchase and becoming the new owner. The closing process can get lengthy and stressful when you're going through a mortgage company. Remember not to exhaust yourself. Ask for help from a real estate agent or attorney if there's any part of the process that's difficult for you to understand. Enjoy your home buying venture. It will probably be the most fulfilling experience you have. You'll feel a sense of joy and accomplishment once you take ownership of your new home.
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The Benefits of Buying a Foreclosed Home
There are many benefits to buying a foreclosed home. The most obvious benefit is that you'll have the opportunity to save a lot of money. You may be able to buy a home for 30 percent less than what it would typically sell for, maybe even more. It all depends on the property's location, the stage of the foreclosure, and the condition of the home. Many buyers wait until properties convert to REO properties because they know the banks will try to sell them quickly at that point. You may want to wait for homes that go to this stage in the process if you want to save the most money.
Another benefit of buying a foreclosed home is that there won't be any title issues. The bank owns the property, so the change of ownership will be effortless and legitimate.
Another positive to buying a foreclosed home is that you'll still have access to all the loan products you can generally get. You could apply for an FHA loan, USDA loan, or other alternatives the same way you can if you were buying a home that wasn't in foreclosure.
Downsides of Buying a Foreclosed Home
There are some downsides and disadvantages to buying a foreclosed home, as well. One drawback is that many such properties are put up for sale in "as is" condition. That means the seller will not be responsible for making any repairs or renovations before you assume the property. Therefore, it will be your responsibility if the property needs significant work done to it. The best way to protect yourself in that situation is to make sure you have someone inspect the home on all levels. Ask questions upfront, as well. Find out what you're working with before you sign a deal.
Squatting situations are rare, but they might happen. Someone might decide that they want to live in the home during the period that the house isn't being occupied. The squatter could be the previous owner, but that's not always the case. Sometimes, opportunists take advantage of the foreclosure process by squatting on the properties. Squatters, unfortunately, have rights. You could be in for a long wait and a lot of money trying to get a squatter out of the property you just purchased. Make sure that you monitor the area for a while and ensure that no one is living it. You may also want to check the squatter's rights in your locale to see what you have to do if you run into that problem.
Another issue that might arise is that the original homeowner might come up with the funds to redeem the home. Different states have different laws about foreclosure home redemptions. In some areas, the homeowners have an entire year to buy their home back if they can somehow come up with all the money they need. It would be smart for you to check your state's laws just to give yourself a little more confidence about the procedure.
Contact Us for Additional Information
This was just an introduction to the world of foreclosed homes. You can start looking at properties today and bid on a foreclosed home soon. We're here to help you if you have any more questions. Our agency is in business to allow consumers to find the financing and help they need to become masters of their personal finances. We can help you find loans so that you can purchase a foreclosed home. We are not a lender, but we have a connection to many reputable lenders in the industry. We can help you get connected to an agency that can provide you with home and auto loans, personal loans, and more. We also have credit counselors and debt management professionals in our reach.
Furthermore, we have a database full of reliable text that you can read if you need to learn more information on personal finance topics. All you have to do is let us know how we can help you. Contact us by telephone or short form and request our assistance. We will listen to your needs and then direct you to a provider who can get you closer to your goals.