So you're thinking about buying a foreclosed property? Alright, you've heard on the news and read in the papers that foreclosed homes or real estate owned (REO) properties could be a great way to purchase a house at a steep discount. Many people contend that banks and lenders are in the business of loaning money, not the business of owning a home. So, they conclude that once these lenders foreclose and take back a house, the bank will treat the house like toxic waste and do everything they can to sell it quickly even if it means taking a financial bath in the process.
Well, I'm here to tell you that the bank may or may not be in such a rush. Buying REO properties definitely can be a great way to find a home and pay less. However, some buyers mistakenly believe that a bank will move much faster in decision making and selling because there is no emotional attachment like a private owner would have. Here is some house buying advice and things you can do to help speed the process up and get the bank to say "yes" to your offer.
When you start looking at houses make sure your heart and mind are in the right place. What I mean by that is when you look at vacant, foreclosed homes do not think you'll step in the front door and smell fresh baked cookies. Most of the REOs I've been in are musty smelling and uncomfortable temperature-wise. Obviously if a bank had to foreclose on the house it is because the previous owner could not afford their mortgage payment. Whatever financial problem the owner experienced to lead them to foreclosure, it probably also caused them a short fall in other financial areas. As they fall behind on mortgage payments, they probably are not putting any money or work into the maintenance and upkeep of the home. Just know that many REO houses will require significant improvements.
If the house has been vacant for a long time and it's winterized, be ready for the toilets to have some disgusting stuff in them. Your first reaction will probably be to replace the toilets, but they can usually be saved with a good cleaning.
In making your offer, the rule is simple: fewer contingencies + Cash = stronger offer. You may be competing with investor buyers for the foreclosure. These investor buyers will likely be making cash offers with little or no inspection periods. Don't let that intimidate you because your offer will likely be higher than the investor and possibly more attractive to the bank. I suggest you give yourself an inspection period, but keep it to 10 days or less. Make sure you get an inspection as early as possible in the process to leave yourself time to figure out how much repairs will cost you. Also, be pre-approved instead of pre-qualified when it comes to your financing contingency. If you have cash to buy the house, that is even better and it strengthens your offer.
Finally, if the house needs a lot of work, you may consider having contractors give you estimates for the work while you are still in your inspection period. They could save you from overpaying for the property. If their estimates are more than you expected, you could always try to re-negotiate the purchase price with the bank. Your agent should be able to guide you through this.
Now you know a little more about how to buy a foreclosure. There's tons of opportunities for you to own your own home through foreclosed homes. So get out there and have fun while looking for your future home!