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Purchasing Foreclosed Homes

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By : Sonia Smith    99 or more times read
If you are interest on buying a foreclosed home, you have to learn as much as you can about the property and its legal status to ensure that you do not find yourself in a big legal mess. Keep in mind that buying a foreclosed home that it is a possession of the previous owner who fails to make the mortgage payments. Some people shy away from foreclosed homes because it makes them sad to think about the family who lost the property.

Nevertheless, listing on foreclosed homes continues to rise these days, which means that would-be homeowners can save more money by buying these properties.

Many of the homes in foreclosure are new homeowners who had built a little or no equity in the home, thus the amount the lender tries to recover may be closer to the full market value of the home or only 20 percent discount at most.

There are three ways to buy a home in foreclosure:

  1. A pre-foreclosure where you get to directly buy from a homeowner or before the bank forecloses. This is appealing since it requires the least capital and most of the information you need is available. You may inspect the home and do a title search and the owner signs a deed and gives the home to you. You will in turn acquire the mortgage that comes with the property and make the mortgage current by giving any back payments to the bank.

  2. During auctions where you place a bid with others. The mechanism could vary from one state to another. Auctions can be performed on courthouse steps, in the office of the county clerk or in front of the foreclose property. Auctions are more risky but at the same time offer the greatest reward. You could get as much as 40 percent on an auction. In this way, you cannot inspect the home before the auction and you have to pay in cash or usually with a cashier’s check. There are also instances wherein the homeowner refuses to move out and would become your responsibility to evict the old owner.

  3. From a real estate company called an REO. This is less risky when it comes to buying because you get to thoroughly inspect the home, ask for a clear title and the sale can be subjected to a mortgage. Many banks sell foreclosed homes through a broker. Homes in REO are also better maintained.

Keep in mind that foreclosed homes are sold as is, meaning that the 25 percent you saved on the purchase can easily be consumed by unforeseen costs like repairs not immediately seen in an exterior inspection. Therefore, you should be prepared for expenses such as plumbing repairs, electrical repairs, leaky roofs or even vandalism by angry homeowners.

If possible, only consider homes owned by people who lived there for at least two years since the longer someone lived in it, the more equity will be built even if they only made interest only payments. Make sure to stay away from homeowners who purchased their property with no money down because this could cut into the equity that has been built up.

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