7 tips for buying foreclosures
There are a lot of great deals on the market, but buyers beware: Purchasing a foreclosure is rife with pitfalls.
By Les Christie
Foreclosures are dominating the housing market. Right now, there are 1.5 million such homes for sale, and more are expected to be available soon. That provides both opportunities and pitfalls for bargain hunters.
Just because prices are low doesn't mean you should make snap decisions or buy something that isn't right. Here are 7 tips for making sure you don't get taken for a ride.
1. Don't get caught up in a feeding frenzy
"Everybody and their grandmas are trying to buy foreclosures," said Glenn Kelman, CEO of Redfin, an online, discount broker. But that doesn't mean you should lose your head.
Banks put repossessed homes back on the market at cut-rate prices because quick sales help avoid the expense of upkeep, such as property taxes, insurance, heat and electricity.
Those lowball prices represent golden opportunities, but they also attract dozens of buyers who may bid until homes are no longer bargains.
Don't get caught up in a bidding war. Instead, carefully calculate what you want to spend and do not exceed that price.
2. Contact lenders directly
Smart buyers establish relations with asset managers at banks. This may reward them with inside information or first crack at new foreclosures hitting the market.
In the case of a short sale, for example, it can give the inside edge. If a buyer is pursuing a short sale -- buying a home for less than what the current owner owes on the mortgage -- she should talk directly to the property's asset manager. That way, if the short sale falls through and the bank repossesses the house, the asset manager knows she is still interested. It could lead to a quick sale without other bidders.
3. Get pre-approved from the lender you want to buy from
If you're trying to buy a property from, say Bank of America, it can help to get a pre-approved mortgage from Bank of America. Doing so may cause lenders to look more favorably on your bid if it's similar to others.
Plus, you're not locked in if other lenders offer you better terms. You can always change your mind and get your mortgage from another source.
4. Consider fix-ups
Most REOs, the industry term for bank owned properties, are sold as is. "The conventional wisdom is that banks will do nothing to the houses before the sale," said Kelman.
That can be problematic today because so many foreclosed homes are in less-than-mint conditions. Often, the former owners were struggling to pay their bills and may have neglected routine maintenance. Or, they may have trashed the properties before leaving
In 25% of cases, homebuyers persuade lenders to fix some of the problems before the sale closes. Most of the time, banks would rather sell the house to the next available bidder -- one who doesn't ask the bank to pay for repairs.
So be willing to consider a home that needs some work -- but budget accordingly.
Click here to read tips 5 - 7 and feel free to share your thoughts!
Source: CNN Money
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