Buying a Foreclosure – What Do I Need To Know
6 Questions Foreclosure Buyers Should Ask
There are questions that buyers in any market should be asking before they make an offer on a property in foreclosure.
April 2009Is now a good time to buy a foreclosure?
This is a very common question. Obviously, because local market conditions vary, the answer is different from market to market. But there are questions that buyers in any market should be asking before they make an offer on a property in foreclosure.Buyers need to be preapproved for a loan before shopping for a foreclosure. If you are thinking of buying a foreclosure as an investment or second home, you need to understand that financing the home will be more difficult and more expensive than financing a primary residence. Lenders typically charge higher interest rates and require a larger down payment for investment or second homes.
How can you tell a bad foreclosure from a good one?
Certainly there are great deals in many markets for both investors and buyers looking for a primary residence. But making a sound deal can be tricky. Buyers need to be wary of unpaid liens, including mortgage debt, taxes, construction loans, home equity lines of credit, and possibly a second or third mortgage. However, once the home is listed through a Multiple Listing System with a Real Estate Brokerage it has generally been taken back by the bank and in MOST cases all liens would be satisfuied.It is important to note that any or all unsatisfied financial obligations could become the buyers’ responsibility when they purchase a property in foreclosure. Unless the property goes through a foreclosure auction and becomes a bank-owned REO, the outstanding foreclosure liens and fees could be simply transferred to the new owner.
If I’m a qualifying borrower, can I appeal to banks for better loan terms?
Lenders are drowning in defaults—particularly in hard-hit real estate markets such as Arizona, California, Florida, Michigan, Nevada, and Ohio—so they may be motivated to cut a deal. If you have a good credit score, many banks may offer you a below-market-rate loan on a bank-owned home. Unlike paying down with points, this doesn’t cost anything in fees, and it gives you the ability to spend more for the home.
What are the costs of buying a foreclosure?
It takes money to make money. The best opportunities are for buyers with cash. If you are planning to rent out the property or even resell it for a quick profit, make sure you consider the carrying costs, including sales commissions, marketing costs, vacancies, taxes, insurance, and maintenance costs. Once you’ve calculated all the expenses, add on another 10 percent to 15 percent. You must build in a “surprise fund,” or you mayt be the next foreclosure statistic.
How does choice of neighborhood affect foreclosure investments?
