THINKING OF BUYING A FORECLOSURE?
Foreclosure, foreclosed property, REO, bank owned… Pretty much all the same thing. It means that a property owner/borrower stopped making the monthly loan payment on his/her home loan and the lender or their representative took back ownership by various legal means (depending on the State the property was located in). By the time the lender has taken back the property it has been vacated.
The lender does not like doing this. It doesn’t want the inventory of homes that it needs to turn around and sell. Given the current state of the economy and the real estate market, there is a huge inventory of foreclosed homes. Not all are on the market. When on the market they tend to be priced below what market value should be for their location, thereby causing neighborhoods and the real estate market itself to decline.
Further, these foreclosed properties are often ‘distressed’, either from deliberate trashing by the former owner or through lack of upkeep. The lender frequently shuts off utilities, and this can be a disaster during the hot humid months of the summer when shut-up homes become habitats for mold. The values of these homes continues to drop until they are priced so low they attract investors who buy them up cheap, do fix up, and either rents them out or ‘flips’ (sells) them.
If you are thinking of buying a foreclosure there are some things to keep in mind: your purchase offer needs to be very ‘clean’ and straightforward, and you need to be pre-qualified for the loan you plan to apply for. Keep in mind that if you are going to use a conventional loan to purchase the home, the home itself will need to ‘qualify’. It cannot be so distressed that the lender will refuse to make a loan on it. You can buy a distressed property by using an FHA 203K loan, which has renovation funds built into the loan. The 203K loan process requires patience as there are some hoops to jump through, but it does may possible purchasing a sadly distressed property in a good location for a great (low) price, and at the end of the process have a great home worth more than what you have into it.
Banks, their representative, HUD, the VA, Fannie Mae, Freddie Mac… all of them are not interested in purchase offers that have ‘contingencies’ such as the purchaser needing to sell or rent their current home. Make your offer very clean. Some of these sellers, Fannie Mae in particular, sometimes offers to pay closing costs for the purchaser (depending on the agreed upon sales price) or to include renovation funding.
Good luck! This is a time of great opportunity for potential home buyers. Home prices can be very low, interest rates are low, and there is a huge amount of inventory to choose from. A few years from now a lot of people will look back at this time and think “Geez, I wish I had bought property back then when I had the chance.”