Buying a foreclosure can be a great way of getting on the property ladder or getting a home for a reduced cost. However it is not something to be entered into lightly and if you are new to the foreclosure market there are a number of things that you should look for or be aware of.
Unless you are an experienced foreclosure buyer then you should never purchase a property at a foreclosure auction. You will not have the opportunity to inspect the property for problems or damage and you will not be able to check if there are any senior liens (e.g. outstanding taxes) against it, meaning that it could end up costing you a lot more than just the sale amount.
The foreclosure market is extremely fast moving and competitive and so securing a letter of pre-qualification of finance before you start shopping is a real benefit. This will help sellers know that you have got the finance secured and can get the deal moving quickly, which in turn makes them much more likely to accept your offer.
Invest in a home inspection
It is always worth paying out a little extra to have a home inspection. For around $300-$500 a home inspector can provide a comprehensive report on the structure, mechanical and major components of the home and property. This will give you a far better idea of the overall condition of the property and what repair costs you can expect.
If there is a particular property that you have your eye on there is nothing to stop you going directly to the lender directly after the foreclosure but before the property goes up for sale. Smaller banks and lenders may be happy to cut out real estate agencies for a quick sale.
Purchase from a bank
Bank-owned foreclosures are generally a lower risk purchase. This is because they should give you the opportunity to inspect the property and they are responsible for the eviction of anyone currently living in it. Banks are also required to pay off any outstanding senior liens, meaning you are not responsible for them.
Prepare for a low appraisal
Foreclosures tend to have a lower appraisal price than other similar properties, usually because there is damage caused by neglect or vandalism. The appraisal price will affect how much you can borrow, so be prepared for the fact you may not be able to get the amount you were expecting.
Have a healthy maintenance budget
Foreclosure properties are usually sold as seen, and many of them are not in particularly good condition. Sellers are highly unlikely to carry out any repairs or to compensate you/budge on their asking price because they are already selling at a loss. Your inspection report may highlight that you have a lot of work to do to make your property habitable and so a healthy maintenance budget is crucial for foreclosures.
Beware of the occupiers
If there are people still occupying the property they may not take too kindly to the fact that it is about to sold from underneath their feet! If occupiers are still present after your inspection you may need to factor in the possibility of further damage/vandalism and always ensure you have enough in the budget for re-keying and securing the entire property.