Buying a foreclosed home offers a lot of opportunities but also raises a lot of questions.
To help you better understand foreclosures, let’s breakdown what it means when a home forecloses, the buying process, and what are the pros and cons of purchasing a foreclosed home.
A foreclosed home is a home owned by the bank. These homes are usually the result of an unfortunate life event leading to the current homeowner not being able to make their mortgage payments.
Whenever someone has a mortgage contract, they have a lien on their property. If you stop making your mortgage payments, it allows the bank to seize control of the home. After the owner defaults their payments, the bank will possess the property and put it up for sale.
When you buy a foreclosed home, you are buying it from the bank, not a homeowner.
A foreclosed home is a home owned by the bank. These homes are usually the result of an unfortunate life event leading to the current homeowner not being able to make their mortgage payments.
Whenever someone has a mortgage contract, they have a lien on their property. If you stop making your mortgage payments, it allows the bank to seize control of the home. After the owner defaults their payments, the bank will possess the property and put it up for sale.
When you buy a foreclosed home, you are buying it from the bank, not a homeowner.
The foreclosure process begins when a lender takes possession of the home. The next steps are:
- Payment default and notice of default: Once the homeowner has missed numerous payments, payment default begins. After 90 days from the missed payment, the bank will send a notice. The time from this notice to foreclosure will vary based on the contract’s details and the lender and mortgage investor’s policies. In most cases, they will allow the homeowner time to create a new payment plan with the bank.
- Notice of trustee’s sale: The lender will then record the pending sale with the county and publish a notice in the local paper. Many people find foreclosures this way, but using a realtor is more effective.
- Trustee’s sale: The lender will then try to sell the home at a public auction.
- Real estate-owned: Once the property fails to sell at public auction, the bank becomes the new owner and puts the property up for sale. Hence, the time when most people purchase a foreclosed home.
The foreclosure process begins when a lender takes possession of the home. The next steps are:
- Payment default and notice of default: Once the homeowner has missed numerous payments, payment default begins. After 90 days from the missed payment, the bank will send a notice. The time from this notice to foreclosure will vary based on the contract’s details and the lender and mortgage investor’s policies. In most cases, they will allow the homeowner time to create a new payment plan with the bank.
- Notice of trustee’s sale: The lender will then record the pending sale with the county and publish a notice in the local paper. Many people find foreclosures this way, but using a realtor is more effective.
- Trustee’s sale: The lender will then try to sell the home at a public auction.
- Real estate-owned: Once the property fails to sell at public auction, the bank becomes the new owner and puts the property up for sale. Hence, the time when most people purchase a foreclosed home.
The different ways you can purchase a foreclosure are: a short sale, at a public auction, or directly from the bank.
- A Short Sale is when the homeowner sells a home for less than what they owe on the mortgage. Because the bank needs to approve your offer, you may end up waiting a long time for the sale to go through.
- At an Auction is a faster process because you will not have to negotiate with the bank or the seller. The cons are that most auctions only accept cash, requiring a lot of money upfront. You also will have to agree to buy the home as-is, which means no appraisals or inspections. This process is risky and not recommended.
In some cases, the auction will allow you to finance through a mortgage, and if this is the case, you will want to have a pre-approval ready to go. I would recommend a Verified Approval, where income and assets are verified.
- Directly from the Bank means that you do not have to work with a homeowner. In most cases, banks do not sell homes to individuals. Hence, why you need a real estate agent to see available listings. These homes sell as-is, but they allow viewings and inspections (the bank also clears the title of the home and evicts the homeowners).
When a property forecloses, the bank will hand it off to an REO (real estate-owned) agent who finds a buyer through agents like me.
Not all real estate agents have worked with REO agents; therefore, you need to find someone who has adequate experience. As someone who has worked in the field for over 20 years, I know how to help you search for the perfect foreclosed property. I can guide you through the buying process, help you negotiate prices, schedule the proper inspections, and eventually make an offer that fits your financial goals.
To get a mortgage to fund your new home, you will need to get pre-approved for a loan. Once you are pre-approved the bank will indicate how much you will be granted for your loan.
Understanding these next steps are crucial.
- An appraisal: tells you the properties monetary value and is required by the lender before you are offered a loan.
- An inspection: an expert will walk through the home and record any damages or needed repairs. This is crucial for foreclosures because they are known for having more damage.
Once the appraisal and inspection meet your expectations we will decide if the home is a perfect fit for you and your family. After the loan is finalized we will submit an offer and close the deal.
One of the most noticeable benefits of buying a foreclosure is a cheaper price. The reason for this is that lenders are looking to get rid of the home quickly to get their money back.
Another benefit is there are not as many title concerns. When you purchase a home from a homeowner you are less likely to get a clean title (legal right to a house). The homeowner may have unpaid real estate taxes on their title causing the deal to be cancelled. When you purchase a home from the bank there are fewer obstacles like title concerns that will hinder closing the deal.
Lastly, buying a foreclosure still allows you some loan options. Although the buying process may be slightly different you can still get a conventional loan or a government-backed loan.
One of the most noticeable benefits of buying a foreclosure is a cheaper price. The reason for this is that lenders are looking to get rid of the home quickly to get their money back.
Another benefit is there are not as many title concerns. When you purchase a home from a homeowner you are less likely to get a clean title (legal right to a house). The homeowner may have unpaid real estate taxes on their title causing the deal to be cancelled. When you purchase a home from the bank there are fewer obstacles like title concerns that will hinder closing the deal.
Lastly, buying a foreclosure still allows you some loan options. Although the buying process may be slightly different you can still get a conventional loan or a government-backed loan.
This process is riskier than buying from a homeowner and that is why having the right real estate agent to navigate these deals is necessary.
These properties can have more maintenance concerns because the homeowners have no incentive to repair damages when they are losing their property. At the end of the day, you will be left with the responsibility of fixing the problems.
The banks are looking to earn their money back quickly so they rarely agree to repair damages. Finding the right home at the right price is important and a lot of people spend a significant amount of cash to repair foreclosed homes after purchasing them.
Although a home may be labeled as “in foreclosure” it does not mean it is ready to purchase. There is a period of redemption where homeowners have the opportunity to catch up on their payments and retain their property. Or if the property is left unoccupied for a long time there may be squatters. Evicting squatters after purchasing a home can take years and a lot of money in legal fees.
This process is riskier than buying from a homeowner and that is why having the right real estate agent to navigate these deals is necessary.
These properties can have more maintenance concerns because the homeowners have no incentive to repair damages when they are losing their property. At the end of the day, you will be left with the responsibility of fixing the problems.
The banks are looking to earn their money back quickly so they rarely agree to repair damages. Finding the right home at the right price is important and a lot of people spend a significant amount of cash to repair foreclosed homes after purchasing them.
Although a home may be labeled as “in foreclosure” it does not mean it is ready to purchase. There is a period of redemption where homeowners have the opportunity to catch up on their payments and retain their property. Or if the property is left unoccupied for a long time there may be squatters. Evicting squatters after purchasing a home can take years and a lot of money in legal fees.
Although buying a foreclosure may afford you a better deal, I can not stress enough the importance of finding the right real estate agent. The potential of buying a home with substantial damage or structural issues is greater if you work with someone who does not have the necessary experience or knowledge. I will guide you through the process and help you find the home of your dreams for the right price. Together we will navigate the search, get the proper appraisals and inspections, and lastly make an offer that fits your financial needs.
Let’s get started on this journey and find your diamond in the rough.
Although buying a foreclosure may afford you a better deal, I can not stress enough the importance of finding the right real estate agent. The potential of buying a home with substantial damage or structural issues is greater if you work with someone who does not have the necessary experience or knowledge. I will guide you through the process and help you find the home of your dreams for the right price. Together we will navigate the search, get the proper appraisals and inspections, and lastly make an offer that fits your financial needs.
Let’s get started on this journey and find your diamond in the rough.
Kenneth Grech
Real Estate Agent
Simi Valley | California
159 Parrot Lane,
Simi Valley, CA, 93065
DRE#01328727
Contact Us
For all Enquiries, please Email us Using the Form Below