If you’re looking to buy a home, you may have heard you can get a good deal by purchasing a foreclosure. But buying a foreclosed home is different from buying other properties, so whether you’re buying your first home or are a first-time foreclosure hunter, here are five points you should know.
1. Finding a Foreclosure
The most common time to buy a foreclosure property is in the post-foreclosure phase. The other phases involve either making a deal with the homeowner before it goes into foreclosure or bidding at an auction. A real estate agent can help you find a post-foreclosure property by searching the Multiple Listing Services, or MLS, for a property that meets your needs. If you prefer to look on your own, you can take advantage of websites that offer listing information free to the public, such as ForeclosureListings.com and Zillow.
2. Making an Offer on a Foreclosure
Once you've found the property you want, you can try to negotiate the price. However, foreclosed homes are often owned by a bank and priced at market value, so negotiating a lower price tends to be more complex than when buying from a homeowner.
A real estate agent can help you navigate the process of making an offer on a foreclosure. Brandon Turner, Real Estate Investor and Vice President of Growth at BiggerPockets.com, suggests finding an agent who specializes in foreclosures because the seller usually pays the agent's commission. If your agent has a solid reputation with area financial institutions, he or she may have a better idea on how to negotiate with them. An agent may also be able to access a previous inspection report, so you can assess the property’s condition before making an offer.
3. Getting Loan Approval to Buy a Foreclosure
A loan for a foreclosure is usually considered a non-standard transaction, which means the lender might have a different set of requirements before approving you. Some foreclosures also require loan approval or pre-approval before the banks that own them will consider an offer. Depending on the state of the home, some lenders may not approve a loan if the foreclosure is deemed unlivable.
4. Hiring an Inspector for a Foreclosure
As with any potential home purchase, you'll want to hire an inspector before you close on the property. This is especially important when buying a foreclosed home, because the home may have been empty for years and could require more work than you're willing or able to put in. "You definitely need to make sure you get a good inspector," Turner says. "Follow the inspector around, pick his or her brain, and learn every aspect of the house."
5. Doing Repairs on a Foreclosure
Because a foreclosure typically comes as-is and is usually considered a distressed property, expect to have to make some repairs. If the work is minor, you can save some money and do it yourself. If there are significant repairs needed, hire professionals and calculate the cost of the work before making an offer.
Buying a foreclosed home can save you thousands of dollars on the purchase price, but it’s important to do your due diligence and understand what you’re walking into before making the investment. If you’re ready to apply for a home loan, use the Regions calculator to compare mortgage loans.
