Pricing for a foreclosed home is typically set at market value in an effort to move the property quickly. You will want to submit a fair and reasonable offer, as most banks will list properties at a fair price.
Before you start looking at foreclosed homes, you will need to determine how much home you can comfortably afford. Please visit our home loan guide to learn more. If you decide to move forward with a purchase 1 , getting prequalified gives you the advantage of being better prepared to make an offer. Getting prequalified is a process in which a prospective borrower provides financial and other information, such as employment history and funds for a down payment, in order for a lender to determine how much loan the borrower may obtain for the purchase of a home.
In addition, a prequalified status shows you are not just browsing, which in turn makes you more attractive to a seller. The REO market offers buyers a unique opportunity to invest in a variety of properties in a diverse range of conditions and price ranges.
Bank of America has loan products that can help with the purchase of an REO property. Beginning the prequalification process is easy and you can get started at the Bank of America Home Loans website.
Many foreclosed homes are listed for sale the same way as traditional homes. In addition to searching the usual resources such as newspapers and online real estate listings and websites, you will want to search various bank and government websites for REO properties. Auctions are another way you can access and purchase an REO property. There are two types of auctions that may occur, a public foreclosure auction or public auction through an auction company.
A public foreclosure auction can occur when ownership of the property officially transitions to the bank. If the property is not sold during the public foreclosure auction, the property is then listed with a real estate agent. You can purchase the property from the bank through a real estate agent once the property has been listed. After the property has been listed with a real estate agent, marketed for a set period of time and has not sold, the bank will often transition the property to an auction company.
Many auction companies sell properties from various banks and investors, holding auctions across the country either in-person or online. Search online for foreclosure auctions in your area. Be prepared if you decide to purchase at an auction, most auction proceedings happen quickly and you have little time to deliberate. You may also not have the opportunity to inspect the property and instead have to rely on photos and printed descriptions.
Despite these challenges, auctions can be a good resource, as long as the excitement of bidding does not lead you to buying a foreclosed home at an inflated price or more than you can comfortably afford. It is always a good idea to do your research and set your budget before you attend an auction. You should work with a real estate agent who is experienced with REO properties. An experienced professional can guide you through any additional paperwork that may come with buying a foreclosed home and can help you determine if the price is a good value.
Getting a home inspection is always a good idea, but it is particularly important when buying a foreclosed home. Given that the bank has not maintained or had first-hand knowledge of the REO property prior to acquisition, there may be no record of property repairs or maintenance that would assess the true property condition. The lender treats the foreclosure and new loan as completely separate transactions, and they are.
Many foreclosure purchases are in cash. You may think saving on fees and doing it yourself is the smart choice. But in the long run, an agent can save you time, money and frustration. Many mortgage brokers and agents have years of experience under their belt and can steer you toward properties that meet your specifications. As always, when choosing a professional to work with, look for training, testimonials, reviews and other indicators of knowledge and experience.
Whether you bid at an auction or negotiate for an REO through your agent, the third step is execution. This is when you put an offer on a home that fits your budget. If you find something at the top of your means when buying a foreclosure, you may not be able to cover all the necessary expenses. You can find real estate auction listings online , through real estate agents, in local newspapers and at your local city hall or court.
You can find REO listings directly through banks and through larger real estate sites like Zillow. The more you know up-front about the state of the home, the better.
During this period, you should have ample time to inspect a property and line up mortgage financing to make a purchase. A home moves into foreclosure and will be auctioned off when its mortgage cannot be settled in pre-foreclosure with a sale or loan modification. The lender publishes a notice of sale within your local newspaper to schedule a time and date for the auction. The auction sales process is relatively fast, so you should secure a mortgage pre-approval letter before attending.
From there, you will have another 30 days to come up with financing and buy the property. CNN Money says that you can expect to buy property for between 20 and 40 percent discounts off appraised value at foreclosure auctions.
These sales, however, are high risk-high reward transactions. A foreclosed home may sit vacant for several months, if not years.
Prior to the auction, the home could attract criminals who strip the property of any valuable fixtures and materials. These concerns are further magnified by the fact that many foreclosed homes are impossible to inspect before auction time. For these reasons, an inexperienced buyer could purchase a foreclosed home at auction that requires tens of thousands of dollars in repairs just to make it livable. To manage financial risks, you may consider a real estate owned purchase.
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