Things to know before buying a foreclosed home

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buying a foreclosed home
buying a foreclosed home

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What is a Foreclosed home?

A foreclosure occurs when the bank that owns your mortgage can no longer afford to make payments. If you have an adjustable-rate loan, it may be resetting higher and causing problems for you. A lender will often sell their debt to a “Recovery Agency” company that buys loans from banks in trouble at meager prices. The Recovery Agencies then work with investors or buyers to purchase these properties.

Is buying a foreclosed home a good idea?

The answer depends on many factors, including how much money you want to spend, what kind of property you are looking for, where you live, and whether there is any equity left in the house after paying off other debts such as credit cards. In general, if the price is right, buying a foreclosure could save you thousands of dollars over time! But keep reading because we also discuss some risks involved in purchasing a foreclosed home.

What is the process of buying a foreclosed home?

Once you know where to look, the next thing you need to do is figure out whether you want to see those houses yourself. The first step is finding one! This is done by calling up realtors or listing agents in most cases. They’ll tell you about all the available homes in your area and how many are currently listed. Then you contact them again after you’ve narrowed things down and ask which ones seem like deals. Some people prefer to use a Realtor because they think that having someone else handle everything makes the whole experience less stressful. Others don’t feel comfortable going house hunting without knowing precisely what they’re looking for.

Either way works fine as long as you follow some basic guidelines:

1) Make sure you understand the terms of sale.

2) Know what type of neighborhood you’d like to live in.

3) Understand what features you would consider necessary.

4) Have realistic expectations.

5) Be prepared to negotiate.

Once you decide to view the properties yourself, call back the agent/realtor and schedule a showing. Most sellers allow only two days’ notice, so try to give yourself enough lead time to prepare. When you arrive at the showings, keep track of all the information you learn while viewing each house. Include price range, number of bedrooms, square footage, location, etc.

How much money do you need to buy a foreclosure?

$50k-$100k – This covers a small starter home. This varies depending on several different variables, but here’s a rough estimate based on our own experiences:
We usually recommend starting with $75k-$150k since you get more bang for your buck. You might even be able to find something for under $50k.

What is the cheapest way to buy a foreclosed home?

This really varies depending on several different variables, but generally speaking, the amount needed will depend on two main factors:

1) How much cash do you have available.

2) What kind of loan do you qualify for. For example, if you have $10k sitting
around waiting to be spent, you might be able to find something priced under $100K.

What are the Pros and Cons of Buying a Foreclosed Home?

 

Pros:

You can get a great deal on a house that you can afford.

The bank will let you keep your old furniture, and you don’t have to pay for moving costs.

Cons:

You may not be able to sell it for as much as you would if you had paid cash.

You may have to wait until the market picks up again.

It’s a lot of work to clean out all your stuff.

How much do you have to put down on a foreclosed home?

Most banks require 20% down when buying a property from an investor. If you’ve got the extra funds lying around, then you could probably save yourself thousands of dollars by putting 10-20% down instead of paying rent. But remember, you won’t be getting any tax deductions either way. So unless you plan on living in the house forever, why bother saving anything?

Do foreclosures sell for the asking price?

Yes, sometimes. The problem is that once the bank sells the property, they often cut their prices drastically. And if the seller isn’t motivated to make repairs before selling, then the value goes right down too. It’s best to shop around and compare offers rather than assume that every house has been reduced equally.

What should I expect to spend on a foreclosure home?

If you are looking for a fixer-upper, this will cost you anywhere between $15,000 – $25,000. However, some houses come fully furnished or pre-owned, and these homes typically run about half the price of a similar quality home built by a builder.

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