Buying a home is one of the biggest decisions that anyone could ever make. And since it involves a significant amount of investment, many people want to approach the process with utmost care and certainty. This is especially true when they are buying a bank-owned home (or commonly known as foreclosures).
What is a foreclosed home?
When a property owner fails to pay a mortgage, the lender takes the house, a process referred to as foreclosure. The same way an auto loan is tied to the vehicle as collateral, a mortgage is linked to the house. If the homeowner fails to make payments as stipulated by the terms of service, his or her lender may have the option of seizing the collateral – the house.
Types of foreclosed homes
Foreclosed homes can either be real estate owned (REO) or bank-owned homes. Both REO and bank-owned homes are under the lender’s ownership, which in most cases is a bank. The only thing that differentiates the two is the stage the foreclosure is in.
Bank-owned homes are in full foreclosure, which means that the owner stopped making payments, and the lender is in the process of removing him or her from the house. Usually, these are homes that end up in auction, where the bank attempts to recover its money.
The foreclosure is said to be REO when the home does not sell in the auction. These homes have already gone through the auction process but aren’t sold. The lender or bank maintains ownership and attempts to sell the house, often through REO realtors.
Buying a foreclosed home
Finding foreclosed homes for sale is pretty much the same thing as buying an ordinary property. However, there are some slight differences as you will notice below.
Get preapproved for a mortgage
Unless you are planning to buy the foreclosed home in cash, your first step should be to secure a mortgage. Try shopping around to find the best rates.
Find a real estate agent or a mortgage broker
Many new buyers assume that they will save a lot by working alone – but that’s never the case. While paying for professional fees may seem like a waste of money, it can save you money, time, and frustrations in the long run. These professionals have gone through training and have years of experience in such matters. They will help you get the most value out of the process. But as always, you want to ensure that the professional has the necessary experience, specialty, reputation, reviews, and so on.
Once you have a mortgage and an expert by your side, your next step is to buy the foreclosed home. At this stage, you make an offer that matches your budget. All this time, you should consider other aspects that may take up your money, including repairs and renovations, property taxes, insurance, closing costs, and inspections.
Pay for inspection
Once the offer is down, you may want to take advantage of that period to organize for review. If possible, you should inspect the house before putting down your offer. The inspection should cover a thorough assessment of the entire house, including radon and termite checks, as well as water line and sewer assessment.
Repair, renovate and relocate
When you clear the logistics to purchase the foreclosed home, it’s time to fix everything to your liking. The work can include plumbing repairs, electrical upgrades, foundation work, roof or floor replacement, and so on.
Is buying a foreclosed home ever a good idea?
Like with any other type of home, buying a foreclosed home comes with its own fair share of pros and cons. But the good news is that banks often clear any liens filed against these houses. You can also bring in experts like home inspectors to assess the property before making the purchase. Inspectors will help you determine the amount you will need to fix the issues. You can then analyze whether a certain foreclosure is a bargain or potential pitfall.
Under the right circumstances, a foreclosure can be a wise investment opportunity. However, as with anything in life, you need to do your homework and bring in the right team to help out. That way, you are certain of getting a deal of a lifetime.