How To Buy Foreclosed Homes?

If you are planning to buy a foreclosed house, there are many factors that you have to take into account. A house goes into foreclosure only if the owner of the house that has taken out a mortgage falls behind on payments. This can be a stressful situation for the borrower as he fails to come to terms with the fact that he is losing his shelter. There are many reasons that can make you fall behind on payments. It may be a medical emergency, a divorce, death in the family or unemployment.

However, buying a foreclosed home can be a good option to opt for especially when it is buyers’ market and the mortgage rates are at an all time low.

Fate of a house facing foreclosure

• The homeowner can repay the loan and free the house from foreclosure. This usually happens during the pre-closure phase.
• The house can be sold off to pay off the creditors before foreclosure is initiated
• In case the above cannot be done, the lender takes away the property.

If you intend to buy a foreclosed house, you can negotiate with the lender during pre-foreclosure phase or you can talk to the homeowner directly to see what can be done about the house. There are times when the homeowner refuses to negotiate as they are under tremendous stress and no amount of logical reasoning is able to convince them.

In case you are planning to deal with a bank, you may come across few that may ask you to pay off the outstanding balance of the mortgage prior to negotiation. Public auction is not a good option as there will be other bidders and the price of the home may escalate to an amount that may exceed your budget.

Given below is a step wise process of what you can do to buy a foreclosed house –

• Weigh the advantages and disadvantages of buying a foreclosed house. What seems to be an advantage for you may be a disadvantage for another homeowner. It differs from the situation in which one borrower is from another.
• Take help of a mortgage broker experienced in dealing with foreclosed property.
• Get a list of foreclosed homes. You will come across many newsletters, magazines on real estate, World Wide Web, newspapers etc listing details of the same.
• Take a look at the house you intend to buy and inspect it very closely.
• Review your credit report to see if it is updated prior to taking out a mortgage.
• Determine the market value of the foreclosed house and the condition in which it is in. Check ownership of property and contact the trustee taking care of the foreclosure.
• Check your affordability with the help of mortgage calculators. Take into account the interest rate you will be opting for and the loan term. These factors will determine whether you are in a position to make payments for your mortgage throughout the term of the loan.
• Quote a price.
• Find out if the foreclosed property you intend to buy has liens on it.
• Try to get the home inspected if the seller allows you to do so.
• Get ready with the paperwork as buying a foreclosed house involves more paperwork as compared to paperwork you are required to do if you are buying a house that is not facing foreclosure.

Following recession and subprime mortgage crisis, the number of foreclosed houses has increased manifold. This is essentially a buyer’s market where the rates are low and will continue to do so for sometime now. So, the tap the market if you want to be a homeowner.