How To Buy a Foreclosure Home Confidently

Buying foreclosure properties can be an excellent opportunity for those looking for a bargain on a new home. Firstly, let's define what a foreclosed home is:

What is a foreclosed home?  Foreclosed homes are properties that were repossessed by a lender after the previous owner was unable to keep up with mortgage payments. These homes are often sold at a discounted price to recover the lender's losses. However, purchasing a foreclosed home is not as straightforward as buying a regular home. Below we will discuss the steps involved in purchasing a foreclosed home.

Step 1: Understand the Foreclosure Process

Before you start searching for a foreclosed home to buy, it's important to understand the foreclosure process. There are two types of foreclosures: judicial and non-judicial. Judicial foreclosures require the lender to go through the court system to foreclose on the property, while non-judicial foreclosures do not require court involvement.

Step 2: Hire An Experienced Real Estate Agent 

One reason buying a foreclosed property can seem so intimidating is being inexperienced. If buying a foreclosure home is new to you and you don’t know anyone, personally, who has gone through the process, then it can feel like there are a lot of unknowns to figure out. Working with an experienced real estate agent can help you clear up these unknowns and go into the process with a better understanding and more confidence.

A real estate agent who knows how the foreclosed home buying process works can help you steer clear of any issues and help educate you about different things to consider when buying a foreclosed home. For example, if you’re buying a foreclosed home at an auction, you’ll need to do additional research to see what liens may be on the property. Every state has unique laws regarding foreclosed homes, so an experienced real estate agent who knows your area and its regulations can be an incredibly helpful resource.

Step 3: Research How to Buy a Home in Foreclosure

While working with a real estate agent is typically the best way to navigate the different types of foreclosures, it’s still a good idea to understand how to find foreclosed homes and know your home-buying options when it comes to this unique process and what they entail. 

Short Sale 

When buying a home through a short sale you will technically be purchasing a preforeclosure property, as it has not yet been foreclosed officially. A short sale occurs when a homeowner is struggling to make their monthly payments and to avoid foreclosure, they sell a home for less than what they owe on the mortgage. 

Buying a short-sale home can be an attractive option for buyers as they may be able to purchase a property at a lower price than the going market rate. Just keep in mind that for short-sale real estate, you will need to work through the homeowner’s realtor or agent, as they still own the property, and you will also need the lender’s approval on your offer, which could take some time to go through. 

Buying at an Auction 

If you’re looking for a speedier home-buying process and are eager to close, then buying a home through a foreclosure auction might be up your alley. Foreclosed houses sold at auction are the result of the homeowner defaulting on their mortgage or failing to pay property taxes, and are typically owned by the bank or lender. 

Each auction usually has its own rules to properly adhere to your state and municipalities, so be sure to do your research ahead of time or strategize with your real estate agent. Buying a home at an auction isn’t for everyone so let’s take a look at their pros and cons to best determine if this is a home-buying option that works for you:

Pros Of Buying At An Auction 

• Bank-owned properties sold at auction are typically sold below market value. 

• There’s no need to haggle or go through the negotiation process with the seller.

• Buying a home at a foreclosure auction can be an extremely speedy process.

Cons Of Buying At An Auction 

• Properties are sold as-is and may be considered distressed properties

• Most auctions only accept cash payments, which means you’ll need a significant amount of money on hand

• Expect to waive the right to an appraisal or a home inspection – auction properties usually don’t allow you to view the home’s interior before purchasing, making them a risky investment 

It can also be important to bear in mind that there are different types of auctions and thus, different etiquette to follow. Some auctions may be open, allowing you to see how much your competition is bidding on a property, while others may have blind bidding, in which you won’t know how much others are bidding. Most sellers prefer blind-bidding auctions since they increase their chances of making more money, so be sure to consult with an expert to ensure that you don’t wind up overpaying.

Buying From A Bank Or Lender 

Foreclosed homes owned by a bank or lender, also known as real estate-owned (REO) properties will require the use of a real estate agent as most lenders won’t sell a foreclosed home directly to the individual home buyer. 

Similar to auction-sold properties, REO properties are usually sold as-is, though they come with a bit more security and peace of mind in the form of: 

• A title that has been cleared of any liens and outstanding taxes

• The ability to view the home before purchasing

• The ability to get a home inspection should you want one

Step 4: Get Pre-Approved for Financing

Getting pre-approved for financing is an important step in the home-buying process, but it's especially important when buying a foreclosed home. Because foreclosed homes are sold as-is, they may require repairs or renovations. As a result, some lenders may be hesitant to provide financing for these properties. Getting pre-approved for financing will help you understand how much you can afford to spend on a foreclosed home.

Step 5: Conduct a Home Inspection

Once you've found a foreclosed home that you're interested in, it's important to conduct a home inspection. Foreclosed homes are often sold as-is, meaning the previous owner may not have maintained the property properly. A home inspection will help you identify any issues with the property before you make an offer.

Step 6: Make an Offer and Close the Sale

After you've conducted a home inspection, you can officially make an offer on the foreclosed home. Keep in mind that the lender may receive multiple offers on the property, so it's important to make a competitive offer. You may want to work with a real estate agent who has experience in buying foreclosed homes to help you navigate this process. 

If your offer is accepted, you'll need to close the sale. This will involve signing a purchase agreement and transferring the funds to the lender. Once this step is complete, you'll be the proud owner of a new home.  

In conclusion, buying a foreclosed home can be a great opportunity to purchase a property at a discounted price. However, it's important to understand the foreclosure process and take the necessary steps to ensure that you're making a worthwhile investment. By researching foreclosed homes, getting pre-approved for financing, conducting a home inspection, making a competitive offer, and closing the sale, you can successfully buy a foreclosed home.