What is a Foreclosed Home?
A foreclosed home is a property in which the current or existing homeowner failed to pay their mortgage or outstanding debt. The homeowner’s rights to it are forfeited, which in turn sends the property to a foreclosure auction or a lending institution for a resale.
Foreclosure is the legal process that gives the lender – usually a bank – the right to foreclose a property after its borrower – the homeowner – did not make timely payments of the mortgage loan.One caveat: Foreclosed homes may seem like a bargain but you should seriously evaluate its pros and cons prior to making an offer. Check out our article Foreclosure Terms for Buyers for more on the specifics.
Buying a Foreclosed Home
Buying a foreclosed home is often viewed as a win-win situation for both the would-be homeowners and the mortgage lender. For the buyers, it means scoring a great deal on a property sometimes in a prime location, or giving them the opportunity to jump into real estate as part of their investment strategy. For the lender, it’s a way to recoup the remaining mortgage amount fast and easy.
Pros and Cons of Buying a Foreclosed Home
The potential financial rewards of buying a foreclosed home can be overshadowed by non-disclosures, liens, and unforeseeable repair costs which can cause a lot of headache and hassle you don’t deserve. You need to proceed with extra caution to see if putting your savings on the line is worth it. While you may save on the initial purchase of the home you could end up spending much of your valuable time cutting through red tape, dealing with evictions and making repairs.
Buying a Home at Foreclosure Auctions
Buying a home at a foreclosure auction is a great way to land yourself a deal and possibly break into a real estate market that was otherwise to expensive for you and your family. Before you take this route to purchase a home, you have to be knowledgeable of its benefits and pitfalls so you can decide if any particular foreclosure actually qualifies as a bargain.
How to Buy a Foreclosed Home at Auction
Watch the video below for a walkthrough of what to expect at a foreclosure auction:Whether you want to live in the property or keep it as an investment, you have to arm yourself with knowledge of the basics of foreclosed property auctions. Having a buyer’s checklist before going to an auction house is a wise move and can help insure you don't become the victim of an overpriced foreclosure. Always remember that the bank or lender is motivated to sell these foreclosures and do not have you, the buyer's, interest at heart. Keeping yourself informed is the best protection.
What is a HUD Home?
A HUD (Housing and Urban Development) home is a foreclosed property on a FHA-insured mortgage (Federal Housing Administration insured mortgage). Under the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) is responsible for providing federal mortgage insurance to potential homeowners intending to purchase a property.
When the homeowner can no longer make mortgage payments, the property becomes foreclosed: If it has been purchased with a loan insured by the FHA, the lender can file a claim for any unpaid or outstanding mortgage balance. As soon as FHA satisfies the lender’s claim, property ownership is transferred to HUD, which then has the right to sell the home.
Short Sale vs Buying a Foreclosed Home
For homeowners who are behind on their mortgage payments or have a home with an underwater mortgage (underwater mortgage means the homeowner's purchase loan is higher than the market value of the home itself), short sales and foreclosures are two financial options available; however, the latter can be a long and stressful process that can cause severe damage to the homeowner's savings, assets and credit. A foreclosure occurs when a borrower consistently fails to make mortgage payments, which gives the lender the right of ownership over the property in question and evicts the borrower.
Short Sale Definition
A short sale, on the other hand, is a process wherein the lender gives the borrower the go-signal to execute a short sale for an amount that is less than what is owed. Though it can be a lengthy and paperwork-intensive transaction, the negative impact on the borrower's credit score is typically smaller than in a foreclosure. Are you thinking about whether to buy a foreclosure or a short sale? Do you want to find out how to buy a short sale from a bank?
How to Buy Pre Foreclosures
House hunters who are looking for a bargain comparable to a foreclosure but without all the fuss should consider looking at pre-foreclosures. There is generally less competition from other interested buyers which can allow them you to pay less than the actual market value of the pre-foreclosed property.
Pre Foreclosure vs Foreclosure
If your main concern is affordability, a pre-foreclosure could be your best bet, especially since you can transact directly with the homeowners instead of the bank. Before you move forward, you need to have a thorough knowledge and understanding of the many steps involved in buying a pre-foreclosure as well as the differing implications it entails over buying an already foreclosed home.
What is an REO Home?
When a foreclosed home doesn’t sell at auction, it becomes a bank-owned property, or REO (real estate owned) property. Buying an REO home can save you tremendous amount of time and energy because it is usually sold for less than its market value, and the eviction process has been taken care of by the bank.
How to Find REO Home Foreclosures
If you want to find foreclosed REO properties at the right price, a direct communication with the bank is highly recommended. On the other hand, working with a seasoned and reputable real estate agent who can give you helpful and reliable tips on the REO home buying process is advised. Because banks or other mortgage lenders set the REO home minimum bid price, which includes the unpaid mortgage balance, plus all other costs generated by the foreclosure process, it is better to make a personal inquiry so you can get a listing of all the REO homes available and compare.
The question of 'how to find foreclosure listings?' is a very complicated one and there is no simple answer. There are many sites out there advertising "free lists" and providing out dated listings for an unfair charge. Your best bet is to do a quick google search of a big bank near you combined the term "REO" as many banks list their REO homes on their website. Another great option is to use Zillow.com which allows the user to filter their results to only show foreclosure listings.
Helpful Articles on Foreclosure
There are a few things you need to look out for if you want to buy a foreclosed property. Whether you’re intending to make it your permanent home or using it to score a profit, you have to weigh all the pros and cons . As for homeowners who are in danger of foreclosure, filing for bankruptcy might help, if only to delay eviction and going through the tough process of foreclosure. You can ask directly from the bank or hire a real estate agent to guide you through the process or transact on your behalf. Either way, you have to make an informed decision before signing the deal so you can get your money’s worth and avoid being left in financial ruin.