How to Buy Foreclosed Homes

Buying a foreclosed home is a potentially great undertaking.  You could buy a home for far under market value, or for far less than the original purchase price.  Be aware that the foreclosure process is a lengthy one, with lots of potential pitfalls, and one that shouldn’t be undertaken lightly.  Check out the steps below before you embark on your home foreclosure purchase.  

Research the neighborhood that you’re interested in carefully.  Foreclosed properties are everywhere, but not every neighborhood is a good prospect.  You want to buy in a neighborhood that is considered desirable, or is in an established up and coming locale.  Find out if there are commercial real estate projects going up in the future.  Look at neighborhoods with burgeoning art scenes, or ones that are at easily commutable distances to city centers.  Some people bought homes in neighborhoods that, in the heat of the market were rumored to be “going places”, and ended up going nowhere at all.  It doesn’t matter if the house costs one dollar: if the neighborhood has no hope for recovery, that’s a dollar wasted.  When you find a neighborhood that you’re interested in, check out the homes in the area.  Focus on ones that look unkempt.  Signs like overgrown lawns or houses in need of repair usually signals an owner in distress.  You may be able to find an owner on the brink of foreclosure that’d be willing to work with you directly. 

Once you think you’ve found a prospect, find as much information about it as you can.  If you visit the local assessor’s office, you can find out information like the assessed value of the home, the owner’s name, tax info, the exact square footage of the home, and aerial photos, etc.  They will also list the amount that the owner paid for the home, which will help you when coming to a decision about price.  The price of the home could be much more or much less than the owner paid for it.  If you are able to determine what the owner’s needs are, that information can help you when determining your strategy.  An owner (and holding bank) who’s trying to get out from under exorbitant monthly carrying costs will appreciate a buyer with cash at the ready.

Visit the house in person and bring along a home inspector who will list out all the issues with the home before you agree on a price.  The worst thing that could happen is buying a home without an inspection and discovering after purchase major structural issues that will cost thousands to fix.  Don’t skimp on the $300 for a home inspection.  Skimping on $300 now may cost you tens of thousands of dollars later.

Make sure that you work with a broker that has a lot of experience with foreclosures.  As appealing as they are, buying a foreclosure is tricky, and can take months to complete.  By the time a property goes into foreclosure, there may be additional financial institutions holding the loans, so the final purchase price would have to be approved by multiple parties, which could take forever.  You’ll want someone who has plenty of experience with distressed properties to hold your hand through the entire process.  Ask the agent to walk you through some of the deals that he’s done in the past, and get particulars.  Find out how much was offered vs. the asking price, how long the approval process took, and if there were any concessions granted by the lenders.  You want an agent with proven experience that can be fully backed up (not just word of mouth).  This is an expensive endeavor, and you want to work with someone who understands the process thoroughly and has an impeccable reputation.