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The process of buying a foreclosed home varies depending on the current owner and how the home is sold. These variables can also affect the price you pay when you buy a foreclosed home.
Help Buying A Foreclosed Home
If the home is in foreclosure, the homeowner can attempt a short sale. Foreclosed properties usually go to municipal auctions first, sometimes known as a sheriff's sale.
Know The Pros And Cons Of Buying A Foreclosed Home
If the home doesn't sell at auction, it becomes a real estate or REO. These are homes that have been repossessed by banks and mortgage brokers, who sometimes place them in the multi-deposit service or offer them for sale on auction sites.
A mortgage pre-approval is important to show you are a serious buyer. Foreclosures are often purchased by real estate investors who usually pay cash. If you have to compete with cash offers, you want to show that you can close the deal. A pre-approval tells the seller that you can get financing to buy the property.
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Buying a foreclosure on the MLS is similar to the traditional home buying process. However, dealing with an auction, figuring out how to present a home that's about to be foreclosed on, or navigating a short sale can feel overwhelming, even if it's not your first time buying a home. A buyer's real estate agent who has experience helping buyers make foreclosure purchases can be a major plus.
Pros & Cons Of Buying Foreclosed & Bank Owned Homes
You will see properties listed as foreclosure or pre-foreclosure on the MLS and on websites with real estate listings that have been removed from the MLS. But that's not the only place to find foreclosures.
Due to the pandemic, businesses and government agencies that provide mortgage repayments (such as Fannie Mae and Freddie Mac) stopped being foreclosed. Some local governments have also suspended tax auctions. With so many people looking to buy a home, struggling homeowners may be able to sell rather than foreclose. Overall, this means there may be fewer foreclosed homes on the market than usual.
Work with your agent to get an idea of comparable home prices so you can make a reasonable offer that fits your budget. After all, in a live auction situation, you definitely want to know your limit! But even if you're buying a home that's been in foreclosure for a while, you want to be strategic.
In a hot real estate market, you need to offer the full asking price. But even in a more balanced market, a low-ball offer might not fly. The bank can already ask what they consider fair market value and they don't want to go lower. With an auction site, you will need to match the reserve price in order for your bid to be considered.
What To Know About Buying A Foreclosed Home
As with any home sale, it is in the best interest of all parties that everything goes smoothly, but buying a foreclosure can be a difficult process. For example, a short sale requires lender approval, which can take additional time.
Many foreclosed homes are sold "as is," meaning you can't claim repairs. It's great if you can pass a home inspection, but in some cases—like a sheriff sale—you may not have that option. You also won't rely on the homeowners' past disclosures. If there is a listing agent, they may have limited information to answer any questions.
A home with a low asking price can cost you more after you move in, especially if it's been unoccupied for a long time, and it can be difficult to finance extensive home renovations with limited capital. If you are considering buying a foreclosed home that needs renovation, you may be able to get a renovation loan, such as a 203(k) loan, to help finance the renovation costs.
About the Author: Kate Wood on mortgages, home buying and home ownership for . Previously, she covered home ownership for This Old House magazine. More
How To Buy A Foreclosed Home
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How To Buy A Foreclosed Home
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Buying A Foreclosed Home: How To Do It And Pros And Cons To Consider
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What Is A Foreclosure And How Does It Work?
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Buying a foreclosed home can pay you big at a time when deals are hard to come by. During the first two years of the pandemic, many homeowners were able to stay in their homes thanks to state and federal assistance programs. According to real estate firm ATTOM, most of these programs have now closed and foreclosures have increased by 18 percent between February 2022 and February 2023. However, they are still relatively low and well below pre-pandemic levels.
The process of buying a foreclosed home is more complex than buying a traditional listing. If you are wondering how to do this, think about it
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