Buying Foreclosures - Saving Money
When a property owner defaults on their mortgage payments, foreclosure may be the result. The lending institution will file a notice of default, and this is entered on the public record. If you're interested in buying a foreclosure, you can search various websites, real estate agents, brokers or magazines, and find listings of foreclosures.
Once you find a property you're interested in, spend some time checking out the legal side of things. Look for any outstanding liens on the property. If there are any, they will probably be for unpaid taxes. Also look at the values of neighboring properties, so that you have an idea what sort of price would be fair market value. Bank owned foreclosure properties are generally considered to be less risky, so might be a good choice if you're new to buying a foreclosure property. Generally with bank owned foreclosures there are no tenants to evict, no past due taxes and no liens against the property.
Most of the time properties that are foreclosed on haven't been maintained very well, so they are often in urgent need of repair. Sometimes this can involve major work, such as roof replacement or repairing damaged foundations, but other times the work may be purely cosmetic in nature. The level and cost of work required can have a big impact on the price of the house. Major issues mean major reductions in price, whereas a house that just needs a little bit of love may sell for close to market value.
If a lending institution is selling the house, it might be a good idea to approach them regarding finance for the purchase. They may be willing to give you a low interest rate or perhaps a small down payment, so that they can offload the house quickly. If they've already done an appraisal, you might be able to avoid paying for another one to be done. Sometimes a lending institution will also include title insurance, which helps to remove most of the risk involved with buying properties in foreclosure.
Once you become more familiar with the whole foreclosure process, and perhaps have bought a few before, then you might want to take it to the next level. Start looking around for pre-foreclosure properties, and strike a deal directly with the property owner. You could offer to buy the property for a percentage of the difference between the market value and the equity in the property. As a property owner risks losing all of the equity in the property once it's in foreclosure, chances are they'll snap up your offer. People who are close to foreclosure just want the problem to go away, so if you give them a fair deal, it's likely to be accepted.
However contacting property owners in pre-foreclosure isn't always easy. Quite often the telephone and other services may have been disconnected at the property. Other times, the owner may have a drug or alcohol addiction that makes them difficult to deal with. Many owners are in a very vulnerable state, and may be less than positive if you approach them with an offer. They're scared of losing their home and may not have anywhere else to go. Remember that there's more than one house, and you are probably better off passing on the hassles of buying this one and finding another.
Buying foreclosure properties can be a great way to buy houses cheaply, but it does come at a cost - some time and research. Put in the work, and soon you'll find more opportunities than you can handle.
