Foreclosure Home Buying Tips
Tips and techniques for buying your dream house or real estate investment property at lowest possible cost and in shortest time
Buying foreclosure home as your residence makes a difference than buying a house for real estate investment. Government agencies and most lenders give you favorable treatment when you are buying a home for residence. See HUD foreclosures for specific information.
Advantages of foreclosure home buying: cash flows, tax benefits, and appreciation.
Make yourself familiar with home inspection tools and techniques so that you do not miss any problem in the property before you buy. This is called buyer's inspection or pre-purchase inspection. After learning these home inspection techniques, attend a professional home inspection once and you are set to go for your all future foreclosure home buying transactions.
Important factors in buying a foreclosure home
- Price per square foot to compare
- Length of time in the market
- Number of rooms (three bedrooms with two bathrooms being standard)
- Age of the foreclosed property and roof
- Your neighborhood: Criminal activities, recent changes in infrastructure, and traffic and transportation patterns
U.S. Department of Housing and Urban Development has been the largest supporter of buying home for millions of people. The largest professional organization on home buying is National Association of Realtors having millions of professional real estate practicing members.
Know your home buying rights
Get a copy of the Real Estate Settlement Procedures Act (RESPA) to know your rights in buying home.
If you buy a home through a real estate agent, you don't pay any commission to the agent who gets his or her commission from the seller.
If you buy directly from the owner (For Sale by Owner - FSBO) who is trying to prevent foreclosure or pre-foreclosure short-sales in cooperation with lender/bank, make sure that everything is correct legally if you do not have the benefit of having an agent on your side.
Agents find homes with the help of Multiple Listing Service (MLS) where foreclosure properties, short-sales, and pre-foreclosures are listed along with other homes for sale.
Know seller's (homeowner or foreclosing seller) motivation
- You have more bargaining power if the house has been in the market for a long period of time.
- What is he or she going to do with the money? Is homeowner trying to prevent foreclosure, does lender have so many foreclosure homes (bank foreclosures or government foreclosures) listed in the same area?
- Are there any current offers for foreclosed home?
- Is price or contract negotiable?
Know your neighborhood
- You need to focus on certain areas after doing some research. Remember that foreclosure homes in some areas appreciate more than those in other areas. That’s what you need to monitor.
- Don’t jump from one property to another at foreclosure auctions. Carefully examine areas of interest. Determine which areas have properties appreciating in value. Get to know everything about the area. Know trends. Get to know officials at local government offices who know the trends in their areas.
- Know everything about favorable areas. Stick to a few areas of your top choice. Do not participate in any other buying and selling activities relating to properties in areas that are not on your list.
- Gather information on the properties sold in those areas whether or not they are sold as foreclosure property. Classify your information by categories of properties having similar specifications. Establish a kind of price list for properties; let’s say for 3 bedrooms and 2 bedrooms with 1,400 heated square feet. Do the same for another property with different specifications.
- Get a feeling for price ranges. Then, get CMAs for precise information on properties sold in the last six months in that particular area where property subject to auction is located. Make liberal use free home listing with all relevant information provided by companies such as Zillow.
Check before buying foreclosure property: Important points
You need to be in a good financial situation if you plan to buy a foreclosure home from a bank. Banks are willing to provide you with home mortgage loan if you qualify. Look for other types of foreclosure houses if your credit rating is not good enough yet.
If a tenant occupies the property, check lease agreement provisions on vacating the property. It is better for you if the lease requires vacating the foreclosure property when it is sold. Most lease agreements contain such a provision. Then, you don’t need to worry about eviction.
Foreclosure home buying for residence
Veterans Administration (VA) loans are for people who will live in VA foreclosures that they get financing for. Take advantage of these low-interest and low down payment (3 percent) loans.
Again, most lenders (banks, credit unions, and private lenders) reduce their interest rates if you tell them that you will live in the property that you are planning to buy at foreclosure.
Review Real Estate ABC for good articles on buying homes in foreclosure.
Foreclosure home buying for real estate investment
Real estate is a great too as inflation-hedging asset. That's why you can get a loan for up to 30 years. Lenders love to finance real estate that appreciate all the time.
IRS gives you tax breaks. You can deduct the interest cost and many other expenses.
Government agencies (Housing and Urban Development - HUD, Veteran Affairs - VA, and others) are all behind lending institutions to support their real estate loans.
Foreclosure property buying for rental income
Following foreclosure real estate properties may be more suitable for rental income one you decide on hold or flip foreclosure:
- Multi-family units
- Properties close to public transportation locations, schools, shopping centers, and hospitals.
Foreclosure home buying for reselling
Fixer upper foreclosures and distressed real estate that need some repair are ideal to buy, improve, and sell for quick profit. The most important factor in buying and selling foreclosure homes is to control the property. You can exercise your control on foreclosure real estate property when you have a contract with a contingency clause or have an option to buy it. You can always decide not to buy the house based on physical, financial, or any other contingency that you write down in the contract. You can do the same by exercising your option not to buy it.
This additional time that you get under these two situations gives you the opportunity to make a careful evaluation of market conditions, your profit margin, and any other factor that you didn't have time to consider in the beginning.