Buying a foreclosure might seem to enter the actual estate game. In down markets, foreclosures seem especially attractive as the real estate market becomes plagued by defaulted properties, some of which could be in great locations and in good shape. Nonetheless, the procedure for buying a foreclosure can easily become a nightmare when buyers overlook certain liabilities and dangers associated with defaulted properties, which makes otherwise would have been a wise investment into a money pit.
Preapproval Letter
Before buying any property, buyers must get a preapproval letter from a creditor by submitting documentation demonstrating proof of earnings, job history and financial status. A preapproval letter acts as a valuable negotiation instrument since it quantifies a loan amount that the purchaser qualifies for according to his current financial status. However, note that a letter is nonbinding to the lending company. It’s also subject to an appraisal, is time sensitive, and the loan amount and terms can change in accordance with your own credit and fiscal status.
Budget Accordingly
Foreclosures can come to market value but demand a lot of work. When some properties can be found in great neighborhoods, most foreclosures are typically sold in poor state. In addition to renovation expenses, the new homeowner might also be required to pay off any existing tax exemptions or unpaid interest, and might have to deal with evicting existing tenants. Sometimes, the potential buyer might know this information beforehand and perhaps even prevent the process altogether. Otherwise, potential buyers of foreclosed properties ought to consider these extra expenses when preparing their budget.
Find Foreclosures and Get the Owner
There are several approaches to find foreclosures. Get in touch with a real estate agent, a lender, a government agency such as HUD or Fannie Mae, or sift through local papers, online listings or by calling the county clerk’s office. According to MSN, the preferred method for inexperienced buyers would be to contact the lender directly for a listing of bank-owned properties. Bank-owned properties are those that were returned to the creditor after an unsuccessful auction sale. Once a bank owns a property, they’ll pay off any existing tax exemptions or unpaid debts and supply title insurance. You will also have the ability to inspect the property before buying it and take advantage of the bank’s seller-incentives such as favorable mortgage terms, lower down payments and no closing costs. With an auction home, you’ll be buying the property blind. That is, you won’t have the chance to inspect the house or determine whether there are any existing obligations to be paid off. Furthermore, you’ll have to cover the property up front in cash or using a cashier’s check.
Research
Foreclosed properties are offered in”as-is” state and are generally in disarray. Hire a contractor and inspector that will help you decide your renovation expenses. Additionally, you ought to do a name search to determine if there are any liens on the property, which may drive up the cost. Liens are any unpaid debts, taxes or contractor bills (mechanics’ liens) that will remain intact until the cash is paid. Normally, bank-owned properties should have a clear name, but you should still make sure this is actually the case lest you’re in charge of paying off some extra preexisting debts.
Financing
At a foreclosure auction house, you purchase property by paying money up front. Otherwise, you can take out a fresh loan or determine whether the property’s existing mortgage is assumable. With a loan assumption, the purchaser takes title to the property and takes over the existing mortgage without needing to get new funding. The assumed mortgage will have exactly the same terms, payments and because of amount because it was first originated to the original owner. Thus, a loan assumption may offer the benefit of having a lower interest than current market prices. Potential customers may also negotiate with the lender to remove the prior borrower from further obligations, thus putting the entire debt burden on the mortgage purchaser.
Make an Offer
At an auction, you just bid on the house and pay cash up front. Otherwise, you can either enlist the aid of a real estate agent to draft an offer letter or do it yourself. Research exactly what similar properties in the region are selling for to determine a fair market value and add up any existing liens found in a title search. The offer price is usually between the market value and all existing debts plus repair expenses.