The current market conditions make it a perfect time for an investor to purchase one or more foreclosure properties for their private residence, rental or resale. During an economic downturn, upscale homes go into foreclosure as well. The idea that foreclosure homes are only available in undesirable areas is inaccurate. Beachfront and homes in affluent areas are also being foreclosed on.
You can buy foreclosures for as cheap as 30% or 40% below market value. If the property is purchased from the lender who holds the mortgage that's in default. That lender may be willing to waive some closing costs, maybe even offer a break on the interest rate or the down payment.
The foreclosure process starts when a property owner falls behind on mortgage payments. Many owners of homes that go into foreclosure have been struggling financially for almost a year before they give up, which usually means that the house has not received needed repairs or general maintenance for a while.
When a lender decides to foreclose on a property, a notice of default or a lis pendens ( "lawsuit pending") is filed, depending on the state. This document is a public record, and for buyers, it's the first step in locating a property in foreclosure. Enlist the help of a Realtor who specializes in foreclosure properties since they have experience navigating these waters.
Since the commission is paid by the Seller (in the case of the foreclosure listing, the Bank is the Seller), you will have excellent representation at no cost to you.
Bank-owned properties offer the safest deal for inexperienced foreclosure buyers because there's no risk. There are no unpaid taxes, no liens, no tenants to evict. Also, a lender that's eager to sell might be willing to offer attractive terms.
Many times the homes foreclosed on are being sold "as-is" so Buyer beware and do your physical inspection. This is where the help of a professional Realtor is necessary.
The lender might offer to finance the property at a below-market rate or with a lower-than-usual down payment. Because the bank already has done an appraisal, the buyer might not have to pay an appraisal fee. Lender deals typically include title insurance, which removes much of the risk that accompanies buying homes earlier in the foreclosure process.
Not all foreclosures are previously owned homes. Some foreclosed homes are brand new homes that rarely appear on national lists. In some areas, the slow economy has left many builders of new midscale and upscale homes at the end of their construction-loan periods without finding buyers for their homes.
In these cases, the banks that issued the construction loans take possession of the homes and attempt to sell them, using real-estate agents to handle the deals.
Pre-foreclosure buys or "short sales" offer bargains but demand persistence. That's because creditors are often hounding owners at this stage.
Most auctions take place at the county courthouse steps, and they pose disadvantages: Buyers might not be able to inspect the property, and they'll have to put up the entire purchase price the same day.
The U.S. Department of Housing and Urban Development also runs auctions to unload homes it has acquired through defaults on federally backed mortgages.
With good credit, many banks will loan the full price of the foreclosure or more. If the home is to be used as a rental, many banks will require only a 10% down payment.
Individuals with a large amount of equity in another home may get a line of credit from their bank to purchase a foreclosure. When they convert the line of credit to a mortgage, no down payment may be required.
Foreclosure homes bought in good areas at below market values that appreciate annually can be a sound investment strategy for many investors. The appreciation of the homes is tax-exempt until the home is sold. If the home is a primary residence, the appreciation may be tax-free.
Homes used as rental properties give most investors valuable tax deductions while the house increases in value and builds equity. With many stock portfolios down, foreclosure real estate investing may be the alternative many people need.
