Buying a Foreclosed Home: Is it Smart Money?
Thanks to reducing home prices and low rates mortgages, a lot of bargain-hunting folks are trying their luck in foreclosed homes.
Buying foreclosed properties is commonly practiced by investors who buy properties below the market value price. After fixing and repairing these properties, they sell them for a gain or rent them out to tenants. But with the home prices in some parts of the country remaining too high, a lot of first time home buyers are also turning to foreclosed homes. Many sites that list foreclosed properties have reported an increase in first time home buyers subscribers. So then, is it a smart money to buy a foreclosed home?
The positive side: Buying foreclosed homes can work for the right buyer. It is a great opportunity to purchase a home at below the market value price. The buyer can chop a considerable amount off its market value.
The downside: It can prove to be more complicated and risky than going the normal way of buying a house. The buyer may have to repair the home, incurring some additional expenses. Before deciding on whether to go the regular route of purchasing a home or buying a foreclosed home, a buyer needs to have his facts straight. Here is what one should know.
Purchasing in a pre-foreclosure stage
Buying during the period between getting a Notice of Default from the mortgage service lender and the time he advertise the home for an auction may provide great bargains. But this is also difficult since there is an art to this practice. It seems to favor the most seasoned Realtors and real estate agents.
For beginners, they need to have a direct deal with the home owner, which can be stressful. In most cases, the home owner maybe unaware that his property was publicized in a foreclosed property listings. Why? The sites get the listings from notices and records from clerks' and county offices without the owner knowing. Many starters have admitted that it’s difficult to approach these owners and develop a rapport, since they are distressed and a bit hardened.
The Risks at auction stage
Auctioning the home is a stage that follows pre-foreclosure stage. If a regular home buyer finds it tough to buy at the previous stage, can he do so at this stage? The fact is that it can be downright impossible.
Starters will need to pay cash and purchase the home sight unseen. They are restricted to finance the auctioned home. A beginner cannot acquire title insurance: Any tax lien attached to the home will have to be shaved off by him.
Foreclosure deals
If no one is interested in the auction stage or no bids are found to cover the outstanding loan, the ownership of the home will pass on to the lender, who would advertise it for sale through broker. This can be a convenient route of buying foreclosed homes. However, the home buyer may end up receiving no discount. Reason? The lender will mostly set a price close or equal to the market value.
However, a prospective home buyer can still negotiate on the price with the bank or lender. If the lender has only few foreclosures, he may try to sell it at the best price. But if their inventory increases, they will start more negotiations and discounts to get rid of the foreclosed homes.
Government foreclosed homes
If homes which were purchased with mortgages guaranteed by the FHA or VA become foreclosed homes, the government itself puts them up for sale. The listings have detailed inspection reports, outdoor pictures, are free and regularly updated. However, bids can only be placed by HUD registered brokers.
Lear more about buying foreclosed homes through Fannie Mae with "The HomePath Buyer's Guide" from AmeriFirst Home Mortgage. Click the button below to download this free guide.
(creative commons photo credit)