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Joy from Pain
You can turn a lender's pain into joy when you purchase a repossessed home. The occasion can be even more rewarding if you do your homework. When you decide to buy a foreclosed home, you are essentially purchasing the property "as is." In return, your price tag will be 25 to 30 per cent lower than a normal home purchase. However, the risk is almost as great as the potential gain. Buying a repossessed home is not the kind of lesson where you want experience to be the teacher; you need to be educated before matriculating into the foreclosure process.
Before finding your first repossessed property, it is important you fully understand how foreclosure works in your area because some foreclosure proceedings vary from state to state. After you have researched the foreclosure process for your state, you need to determine which buying option you would like to use to find your property. The most common options used are auction, sheriff's sale, bank owned, government owned or real-estate owned (REO). See link in Resources.
A real estate owned, REO, property may be the best "first time" foreclosure purchase. REOs are owned by the bank and often have a clean property title. This means the house is less likely to have any liens. To purchase an REO property, you need to contact the lender directly and request the asset management or the REO department. Explain your interest in the desired property and try to get as many details about the property that you can. However, if an REO is not the route you would like to take, there are other ways to find repossessed homes. You can find foreclosure listings in the newspaper, real estate magazines and through Internet search engines. You may garner the best results by searching the foreclosure listings on government agency websites, like Fannie Mae and the U.S. Department of Housing and Urban Development (see links in Resources).
If you decide you want to purchase your foreclosure property through an auction or sheriff's sale, you need to acquire as many property details as you can. If you have the address, check the property for any outstanding liens. A tax lien, or a different lien, does not necessarily render the property untouchable, but if there is a lien, you need to find out who is responsible to pay the outstanding balance if you purchase the property. In addition, if you have the address you will also have the name of the owner, so you may be able to contact the owner before the auction to get even more information about the property. Before deciding on this option, you may want to attend a few auctions so you can witness the process before you actually participate.
Get Pre-Qualified and Get an Agent
After you decide on your buying option, hire an agent. This cannot be stressed enough. An agent will cost you a commission fee, but it may cost you more if you do not use one. When you choose an agent, be sure to choose one well-versed in locating and buying repossessed property. Once you have a real estate agent, apply for your loan. This is not mandatory; however, it is best to be pre-qualified when buying a repossessed property. Being preapproved shows the seller you are a serious buyer. Also, having a pre-qualified loan may get you a cheaper purchase price.
Inspection or Sight Unseen
This is one of the riskiest parts of the foreclosure process. When you purchase a repossessed home, you cannot always conduct an inspection. You are purchasing the house "as is." This is one reason why foreclosed properties can be purchased at deep discounts. Due to the circumstances, the previous owner may have been bitter about losing his home, so he probably did not maintain it, and he may have even destroyed the property. In some cases, however, you may be able to view the property. If you are allowed to do so, you need to inspect every area of the property that you can access. Be sure to compare the listing details to your visual details for any inaccuracies.
If you are unable to do an inspection, you can still acquire other details concerning the property, like the current market value, the amount of the outstanding balance and the first loan amount. This will give you better insight into what the selling price should be. You also need to conduct a neighbourhood comparison on your own or you can have your agent do it for you. If you do the comparison yourself, estimate the value of the neighbouring homes, the cost of living of the neighbourhood and the quality of the schools (see link in Resources).
Make an Offer
After you and your real estate agent have researched the property to your satisfaction, and if you still believe the property is a wise investment; make an offer. Once you and the seller agree on a selling price, you can prepare for the closing. However, you can expect to complete more paperwork than a normal home purchase because most foreclosed homes are sold without a warranty. After the signing, the property belongs to you.
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