Have you ever considered buying a foreclosed property? Doing so is one way to save a bit of money while getting the home you like in a community you might be eyeing. But before deciding if this is the path for you, there are some things you should know about purchasing one.
Let’s take a closer look at what foreclosure means and how you can buy this kind of property.
What is a Foreclosure?
A foreclosure is when a property is seized from the homeowner and put up for sale by the bank (or the institution that issued the loan). Mortgage contracts have a lien on your property which allows the lender to take control of one’s property if payments are not met.
Thus, foreclosures usually occur when the homeowner has failed to make the payments on the mortgage as agreed upon in the terms of the loan contract. It allows the lender to recover at least some of the mortgage balance.
Reasons for reaching foreclosure can vary, but each one ultimately leaves homeowners unable to keep up with their mortgage. This can include bankruptcy, divorce, disabilities, excessive debts, and expensive home maintenance costs. It can also be a failed economy, job or income loss, job or home relocation, and amounting medical bills.
How Does a Foreclosure Work?
A foreclosure doesn’t happen overnight. It has several stages you need to understand if you’re considering buying a foreclosed property.
This usually occurs after homeowners miss at least one payment. The bank or lender issues them a notice of default after 90 days of missed payments.
The referral timelines can vary depending on the terms of the contract. For some, the homeowner is given 90 days to pay off the most recent bill. Others are given time to arrange a new payment plan with the lender to allow them to get back on track with their mortgage and keep their home.
Notice of Sale
If the homeowner still hasn’t come up with the payment, the lender puts up a notice of sale with the county. It can start off by publishing in the local newspaper or on local community sites. Others try to sell the property at a public auction.
If sold at an auction, the winning bidder will have to pay the full amount immediately. Once the sale is complete, the deed is given to the new official owner.
Real Estate-Owned (REOs)
For instances that the property does not sell at an auction, the bank becomes the owner. They enlist the property through real estate agents and platforms to tap into the market of interested buyers.
How to Buy a Foreclosed Property
The process of purchasing a foreclosed home is a little different from simply buying a house from a homeowner.
1. Get a Mortgage Pre-Approval
Before you start scouting at foreclosure auctions or REO listings, you need to secure a mortgage pre-approval to know how much you can actually afford. This gives the seller the confidence in your ability to pay them, so you gain an advantage over other buyers.
There are many types of mortgages, so it’s essential to know which one best suits your needs and situation. Essentially, having a pre-approved mortgage allows you to understand how much you can and should borrow, making the house buying process easier.
Many foreclosures, especially those in auctions, may require cash payments. In this case, you’ll need to have proof that you can pay the full amount upfront.
2. Find an Experienced Real Estate Agent
Buying a foreclosed property can get tricky, so it helps to work with an agent who’s well-versed in REOs.
An experienced foreclosure agent helps:
- Search for foreclosed properties.
- Arrange for viewings and home inspections.
- Negotiate the asking price.
- Understand your property needs and specifications.
- Work through your state’s REO buying process (e.g., judicial proceedings).
When choosing an agent, always consider client testimonials and reviews, knowledge of the local market, training, and timeliness when communicating with you. Remember, having the right agent will save you time, effort, money, and stress in the long run!
3. Get an Appraisal, Have Inspections, and Resolve Liens
Once you’ve narrowed down the properties you're interested in, you need to submit an appraisal to your lender so they’ll know how much the property is worth. This requirement is essential before they finalize your home loan because they need to know that they’re lending you the right amount.
Keep in mind that foreclosed homes are sold as is, meaning the bank will not fix any issues left by the previous owner. That’s why it’s vital that you do in-depth inspections and walk-throughs of the property before putting in an offer. This will help confirm the defects you’ll have to address and additional costs these could incur.
Before closing a deal, you must resolve existing liens as many foreclosed properties have more than one loan from different lenders. Your agent and a professional title company can help you navigate through liens to avoid potential conflict on your end.
4. Purchase Your Home
After reading the appraisal and inspection results as well as resolving the lien, you can better decide if the property is really for you. Contact your lender to finalize your mortgage loan. Consult with your real estate agent when putting in an offer that fits your budget and closing the deal.
Don’t forget to factor in the additional expenses like inspections, insurance, repairs and renovations, and taxes when budgeting for your purchase.
5. Repair and Renovate
Once the sale is finalized, it’s time to do the more extensive renovations. From electrical upgrades and plumbing repairs to foundation work, roof replacements, and backyard or lawn work, you need to ensure that your new home is up to code.
Once you’re done with all the fixes in your foreclosed home and all else is ironed out, you’re now ready to move in!
Buying a foreclosed property is an opportunity for you to score a good deal while hunting for real estate. While, at times, it seems to help you save money, purchasing a foreclosed house takes a lot of work. From securing the funding to carrying out needed renovations, the workload can get heavy and costly - if not done the right way.
And that’s where we come in. As experienced real estate agents and Vegas experts, we can help you ease through every step of the house buying process. Are you looking to buy a home in Las Vegas? Contact us today to learn more!