You can find some great deals on Foreclosed properties.
While some can be great deals, there are some things you need to know about buying a foreclosed home before you jump in.
These are typical with most foreclosed home purchases:
- Foreclosed homes are sold as-is.
- There are no seller disclosures.
- Little to no room for negotiation
- Typically just one real estate agent is involved.
5 Tips for Buying a Foreclosed Home
1. Do a title check
Before making an offer on an REO property, you need to run the title to ensure there are no outstanding loans, liens, and taxes. Check for secondary liens and even unpaid HOA dues as well. You should always get title insurance in the event there is something that you missed.
2. Move fairly quickly before investors have a chance to buy
You have to move quickly when buying foreclosures homes. There is a grace period allowing owner-occupants the first chance to buy the property before it is available to investors. A real estate investor will pick up the good deals once it is available to them.
HUD homes on the HUD home store website have a 60 day grace period before properties are available to investors. REO properties will have varying grace periods depending on the lender.
3. Get a home inspection
Keep in mind is that foreclosures are sold “as-is.” There may be underlying issues that require repair; lenders don’t often make these repairs before selling foreclosed homes. Make sure you get a complete home inspection before making an offer on an REO property.
There will not be any seller discourses because the lender has never lived in the property. The seller disclosure usually points out any items of concern, such as damaged or in need of repair. You can find these items on your own with the help of a good home inspector.
4. Look for HUD homes
If you are interested in foreclosures, you should look on the HUD website to find available HUD foreclosures. HUD homes are properties that were foreclosed on by a borrower with an FHA loan.
You will need a real estate agent to place a bid on your behalf. There are also special programs such as the ReadyBuyer HomePath program that require a low down payment and 3% cashback to use for closing costs.
5. Have a little extra cash stashed away for repairs
Most foreclosed homes will need several repairs, both major and minor. In many cases, the previous owner did not make sure the home was in tip-top shape before moving out.
Banks will not do any repainting or other repairs, leaving that for the new owner. It’s a good idea to have at least a couple thousand dollars in reserves to make the necessary fixes
Mortgage programs for foreclosed homes
There are a couple of mortgages that are perfect for a foreclosed property that requires repairs. These renovation loans make it possible to buy a foreclosure and get extra cash to make repairs.
FHA 203k Loans – An FHA 203k loan is a type of renovation loan available to owner-occupant buyers and real estate investors. These loans will lend you money to buy the foreclosed home plus give you additional cash up to $35,000 to make renovations and repairs.
ReadBuyer HomePath Program – The ReadyBuyer HomePath program is available for any foreclosed HUD home purchased through the HUD home store website. It is also available to both owner-occupied borrowers as well as real estate investors. HomePath is not a renovation loan, but they require just a 5% down payment and give you a 3% cashback to go towards your closing costs.
The Bottom Line
Foreclosed homes are a great way to pick up a great deal in the housing market. These homes are usually discounted quite a bit because they need some repairs.
Because the bank is the seller, and the previous owner may not have taken good care of the home, make sure you get a proper inspection done.
If you have a good idea of what needs to be repaired and have the money to do it, then foreclosed homes are a great option for you.