Buying a Foreclosure? Here’s What You Need to Know

Buying a Foreclosure? Here’s What You Need to Know

buying a foreclosure


When you’re in the process of searching for a home you may think to yourself buying a foreclosure would be a great way to get a fixer upper at a discounted cost. However, it’s not always as easy as making an offer and getting the home, especially if you’ll be financing it.

Take some time to learn about what’s involved with buying a foreclosure to determine if it’s the route you want to take or if you want to find your dream home another way.

What are the advantages of buying a foreclosure?

The plus side to a foreclosure is you can sometimes get a home in relatively good condition for a fairly decent price.

Brian Smith, Branch Manager of our GVC Mortgage branch in Pendleton, IN, said an advantage was “Depending on who owns the home, there could be alternative financing options available.” He added, “If it’s a HUD owned property you may qualify for as little as $100 down depending on the list price and your offer.”

Smith definitely recommends checking with your lender for specific qualification parameters.

What are the disadvantages?

Many foreclosed homes are in terrible condition meaning you may get the property for dirt cheap, but then you’ll usually have to spend thousands of dollars making repairs.

“Some homes are in extreme disrepair and can’t be financed in their current condition,” Smith said. If you’re needing or wanting financing, the state of repair is definitely something to take into consideration.

As for general repairs, Smith said, “The most common are cosmetic, like carpet or flooring.”

What are the different types of foreclosure? Which one is recommended?

There are two types of foreclosed properties: bank owned and government owned. The bank owned properties are all the Fannie Mae and Freddie Mac homes while the government owned homes include FHA, VA, USDA, and HUD.

Smith commented the bank owned properties, depending on the bank, can be a little easier to deal with.

“If items are needed, or paperwork needs to be signed, it’s sometimes easier to deal with a real person,” Smith said. “Once again, it depends on the bank.”

What are the main differences between buying a foreclosure versus a non-foreclosure?

Smith said a lot of times with a foreclosed home there’s a lot more paperwork. If you’re not sure how the financing of a foreclosure works, it may be difficult to understand how the escrow repair fund works. If you’re a cash buyer, this may not be as big of an issue for you.

He added when buying a non-foreclosed home there’s normally two agents involved, a listing agent and a buyer’s agent.

“When both agents are involved, the negotiating process goes a little smoother and faster,” Smith said.

Do foreclosures come off the market quickly? Can you negotiate?

Yes you can negotiate the purchase price, even with a bank.

“You have to be careful though. If you think you can lowball on a home in decent condition you’ll be competing with a lot of cash buyers,” Smith said. “Banks will consider a low cash offer before a low finance offer because they know it will close quicker.”

What else should you know?

Don’t try to put your cart before your horse. Make sure you know what financing options are available to you before you put in an offer or even start looking for a foreclosed home.

“Prequalification is number one in my opinion. Second, always check with your realtor and lender to see if the home you’re considering is financeable. You may be an A+ borrower, but if the home is in drastic disrepair it may prevent you from buying it unless you’re willing to enter into a program that would allow you to get the repairs made,” Smith said.

His last words of advice, “Be ready to make an offer at the drop of a hat if you’re considering buying a foreclosure in relatively good condition. There isn’t enough inventory for the number of buyers out there.”

Have you purchased a foreclosure, what was your experience like?


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