8 Ways to Save on a Foreclosed Home

  • The Foreclosure Checklist

    When Tennessee resident Sonja Luecke purchased a foreclosure last year, the process took much longer than she expected. Though many believe distressed properties cost less, Luecke spent more than a year searching for a house in her price range that didn’t need too much work up front, and even then she found herself living in a construction zone. “There is still so much more to fix, but on a budget, it all takes time,” Luecke says. Luecke’s story is not unique, however. Almost 25% of home sales are on foreclosed properties, but these homes can be fraught with special quirks for homebuyers. Here’s the must-have checklist for homebuyers looking at foreclosed homes. Photo Credit: cogdogblog
    Is a foreclosure for you?
  • Is a foreclosure for you?

    The first step to buying a distressed property is to decide if you’re really in the market for one. Houses in some stage of foreclosure – short sale, auction or bank repossession – may be lower in price, but there are strings attached. For starters, Michelle Silverman of Prudential California Realty says it generally takes three to six months or longer to close on a distressed property. This is especially true if a property is in short sale (meaning the lender has yet to officially repossess the house and has agreed to let the owner sell it for less than is owed), since both the bank and the owner have to accept an offer before the closing can commence. Additionally, banks prefer to sell to buyers who can pay in cash, since this allows them to recoup the losses they took on a property when the original owner couldn’t repay the mortgage. As such, those without adequate cash reserves or who need to move immediately should probably avoid the foreclosure market. Photo Credit: bradleygee
    Assess the damages.
  • Assess the damages.

    Most foreclosure properties are purchased “as is”, meaning the bank won’t make any repairs on a property that a buyer is taking off of their hands. Luecke quickly discovered that most foreclosures in her price range - $30,000 to $80,000 – were in such poor condition, the repairs negated the lower price tag. “In one, a ceiling had caved in, and part of the house had rotted away. Another house was filthy dirty and smelled like urine,” she recalls, before pointing out that the foreclosures of more expensive homes, which are less inclined to need a lot of repairs, are a great deal for people who can afford to spend the $200,000 and up they tend to cost. Those trying to find a deal on a foreclosure should visit the property themselves to assess whether or not the repairs warrant the purchase.
    Make sure you’re really getting a deal.
  • Make sure you’re really getting a deal.

    Home buyers also need to comparison shop,because even if a distressed property isn’t physically distressed, a bank still may overcharge for it. “A buyer has to remember that they are dealing with a bank that has no emotion to the sale,” Silverman says. “It’s strictly a numbers game.” Armando Montelongo, former co-host of A&E’s “Flip This House”, says a foreclosure should be around $15,000 to $20,000 less than non-foreclosure properties in the area. Prospective homebuyers can review the closing numbers of comparable homes on websites such as ZillowPropertyShark.com and StreetEasy. They can also visit auctions on other distressed properties in the area to get an idea of current prices. Photo Credit: jm3
    Research the neighborhood.
  • Research the neighborhood.

    This is a good rule of thumb for anyone shopping for a new home, but it’s especially important for those considering a distressed (but discounted) property. “Foreclosures tend to have a direct correlation to additional foreclosures and abandonment in the same and surrounding neighborhoods,” says Adam Robert, a loan specialist at St. Louis County Office of Community Development. A hard hit neighborhood can depreciate the house’s overall value, thus negating the discount you think you are getting. Abandoned areas also increase the likelihood that you’re signing the deed to a fixer-upper since they also tend to attract criminals. “Burglars, squatters or vandals steal and destroy all items in the home worth any black market value,” Robert says. “Oftentimes, copper piping, furnaces and air conditioners are cut out and removed, windows and doors broken and walls [are] marked with graffiti.” To avoid these problems, Arden Shank, president of Neighborhood Housing Services of South Florida, suggests making sure the neighborhood is in a good area or has a park or other desirable features to recoup the costs it takes to repair a foreclosed home. Photo Credit: Libertine
    Beware of adding a “subject to inspection”.
  • Beware of adding a “subject to inspection”.

    Some buyers insist in the contract that the negotiated price is only valid after a proper inspection has revealed no further problems that might not have been apparent during the negotiation process. This may make the bank less inclined to sell to you. “They’d rather sell to a guy like me, who isn’t requesting a property inspection,”explains Montelongo, who still flips foreclosures. Montelongo also adds that the clause may not even be necessary. Most banks or lenders already have a stipulation in their housing contracts that allows for a home inspection five to seven days after they accept an offer on a distressed property. During this time, a buyer can decide if he or she would like to move forward with the purchase or not. Photo Credit: princess_bleck
    Make sure you have title insurance.
  • Make sure you have title insurance.

    “Foreclosures are fraught with issues in ownership, liens and judgments,” Katie Wethman, a realtor who works with Keller Williams Realty in Virginia, says. She suggests prospective homebuyers pay the extra money to have their own title search completed early on. More importantly, Wethman says to “absolutely buy title insurance,” which will protect owners against lawsuits challenging the rightful ownership of the home, or reimburse them for any monetary loss incurred as a result of a title dispute. If you want to minimize the chances of a title dispute, Montelongo suggests buying a bank repossession (in lieu of an auctioned property, or a property in short sale) since at that stage of foreclosure, the bank has already become the owner of the home.Photo Credit: comedy_nose
    Be ready to close on time.
  • Be ready to close on time.

    The bank may have made you wait, but that doesn’t mean you can do the same.  “If the bank accepts your offer and says you have to close in thirty days, they will charge you a fee for every day you go over,” Montelego explains. This per diem rate can be as high as $150 per day, though the bank can also decide to reneg on the sale in the event of delays. “It costs the banks to keep the property on their books,” Montelego says, explaining that lenders are constantly looking for ways to minimize their losses. Photo Credit: hirotomo
    Change the locks.
  • Change the locks.

    If you are buying a property that has been empty for an extended period of time, you may want to change the lock immediately after receiving the keys. According to real estate blog HomeRun Homes, bank repossessions oftentimes use master keys that also unlock other distressed properties in their neighborhood. Additionally, if a home will be vacant for some time, you may want to install a security system. “After foreclosures have sat on the market for extended periods of time they generally become targets for burglary, vandalism and squatters,” Shank reiterates. Photo Credit: joeymanley
    Checklist for a First-Time Homebuyer
  • Checklist for a First-Time Homebuyer

    While the status of distressed properties differ, certain rules still apply to buying any of them. For instance, you’ll still need to be pre-approved for a mortgage before you can purchase a property.  Find more helpful tips in MainStreet’s checklist for inexperienced homebuyers. Photo Credit:  woodleywonderworks
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