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What is the Advantage of Buying a Foreclosed House?
It's in all of theheadlines: foreclosed properties are at their highest levels in years. By some estimates, almost 3% of all of the houses in the United States are vacant or foreclosed.
And you can get a great bargain, and make a great investment if you follow the right steps.
Step number one is to contact a real estate agent specializing in these types of properties. Lenders that have these kinds of properties on their books usually work with a handful of real estate dealers. You may even be able to take a foreclosure tour with one of these specialized realtors.
Foreclosure auctions may seem like a good idea, but you do not get to inspect the property in advance, putting you at a disadvantage. With an agent, you have the opportunity to walk through the house, ask questions, etc.
There is a wide range of foreclosed houses, some of which have been badly damaged, either willfully by irate owners or by lack of care, and others which just need a little TLC. If there is real damage to the property, you may consider asking a general contractor to inspect the home and give you an estimate on how much it will cost to repair the damage.
The next step is to look at the "comparables" in the neighborhood to find out what a home like this would cost, without damage. Comparables are the prices that similar homes in the same area have sold for in the recent past. Make sure you look at the prices of homes that sold, since the list prices can be inflated. Put aside the damage to the property for now; right now you only want to know what the value is if it were in good condition. Now, you can subtract your costs of repairs from that price.
Start your initial bid as low as you can. There is no reason to bid the asking price, or you wouldn't be looking at a foreclosed home. The real estate company will probably have a good idea of how low the seller will go. In today's market, right now is likely the optimum buyer's situation, a seller who does not want to own the house under any circumstances, is losing money on it, and has even more houses to get rid of.
Between the estimates and how much it will cost to repair, you will come to a good value. You should be able to get a bargain, given the market you are working with.
In terms of your mortgage, be sure to apply for an amount to cover repairs as well as the sales price. If you have a large deposit available, consider lowering it to retain funds for the repairs.
A HUD 203K loan is an interesting possibility for borrowers of distressed properties, since it will grant a mortgage to cover both the purchase price and the repairs.
It is always s good idea to contact a mortgage consultant ahead of time and obtain a pre approval letter for your loan. For the maximum negotiating power, you have an advantage over other prospective buyers if you already have your financing in place.
{Don't settle for the first house you see or give up too easily if you don't have success at first.|Just keep in mind that there are lots of foreclosures out there, so there is no need to overpay or to settle.|Whatever happens, don't be ready to settle, since there is a lo
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