Buyer's Articles – For the smart consumer

Finding Bargains in Foreclosed Properties
Bargain hunters and first-time home buyers alike almost always have questions about the value of buying foreclosed homes. Realtors have access to listings of foreclosed homes being sold at prices that are extremely competitive in today’s housing market. 

When realtors show potential buyers foreclosed properties, they should make every effort to convey the difficulties that a new home owner may experience once the sale is complete.  If you are considering the purchase of a foreclosure property that may be too large of a commitment for your lifestyle, a good realtor will be honest and share his or her concerns with you.  This is because good realtors want their clients to be happy with their purchase, and therefore try to ensure that each client is making the best decision for his or her particular circumstances.

Logistically, the process of searching for a foreclosed home is very similar to that for any other home.  Specific listing services provide information to potential buyers, and realtors receive additional information that they can shared with potential buyers.

Potential buyers usually want more information about foreclosed homes than what is available. Understand that when you seek information about a home being sold through a foreclosure sale service, your realtor will probably need additional time to find the answers you need.

A foreclosure is almost always a home that was purchased by a buyer with a federally insured mortgage.  The buyer then defaulted on the loan and the home went into foreclosure.  Because the borrower’s mortgage was federally insured, the insuring agency was required to satisfy the remaining balance of the loan, in essence buying the home from the lender.

Obviously, the government does not want or need this surplus property.  Therefore, the government usually sells the property to a company which specializes in the sale of foreclosed properties.  These agencies are located across the country and list thousands of homes for sale. 

Some of the higher-quality homes in affluent areas are sold immediately, perhaps even before they are officially listed for sale.  This leaves average home buyers with opportunities to save a significant amount of money if and when they find a home that works well for their current situation.

Many foreclosed homes have been vacant for a long time before the listing agency places them on the market for sale.  The risk of problems arising from that vacancy may leave buyers disillusioned when they finally have a chance to visit the homes they are considering.

Also, in some foreclosure situation, the previous borrower may not have maintained the home adequately and there may be missing or damaged items throughout the home.  Sometimes foreclosure homes are referred to as buyer beware, because these homes are almost always sold as-is.

Here are the three most questions that realtors are asked about foreclosed properties:

How Can I Find a List of Foreclosures?
Stay away from companies that promise to provide you with a list of homes that you can purchase for pennies on the dollar.  These companies have been known to provide sellers with lists of homes that have already sold, or lists of homes that are already available for free through realtors.

The same federal agencies that put the homes up for sale may be willing to extend financing to potential buyers.  These agencies will sometimes give the buyer grant money or a low-cost second mortgage loan to be used for the repair...

The Internet is a good place to begin your search.  Most of the reputable agencies place their listings of foreclosed properties online. 

If you want to know whether additional foreclosed homes are for sale in your area, contact your realtor.  His or her office probably maintains a list of foreclosed properties, and your realtor would be more than happy to meet with you to discuss the possibilities.

So, Do I get pre-approved for a regular mortgage?  Or Am I Required to Pay Cash?
A common misunderstanding among potential buyers is that unless they are prepared to pay cash on the spot, they cannot purchase a foreclosed home.  This is simply not true.  Some lenders offer special loan programs aimed at borrowers who intend to buy a foreclosed home.

Lender appraisals and inspections may sometimes make it difficult to obtain a mortgage for a foreclosed home that has been damaged or is in need of significant repair.  Consequently, the same federal agencies that put the homes up for sale may be willing to extend financing to potential buyers.  These agencies will sometimes give the buyer grant money or a low-cost second mortgage loan to be used for the repair of the home.

In sum, you do not need to pay cash. However, you may need to borrow a specific type of mortgage loan, depending on the home’s condition and price.

Will I Save a Lot by Buying a Foreclosed Home?
Another common misconception is that foreclosed homes are priced at pennies on the dollar.  Well, if you consider this phrase to mean 99 pennies on the dollar, then you may be correct.  Generally, foreclosed homes are listed for sale at their approximate market value, according to the home’s location and condition. 

Some foreclosed homes sell for very low prices, but in most of those cases the homes were razed in order to make room for new construction.  More commonly, high-priced homes in affluent areas sell for a few percentage points less than their current market value.  If this is the type of deal that you are looking for, then definitely consider purchasing a foreclosed home.

A good realtor will warn you up-front that the costs associated with buying a foreclosed home can be significant.  The buyer may be required to perform very costly repairs before occupying the property. Also, these buyers may be unable to take advantage of low interest-rate specials offered by lenders.

If you are considering the purchase of a foreclosure, be realistic in your expectations and prepare to expect the unexpected.  Many buyers are thrilled with their home after purchase, but others are forced to complete months of costly repair work before they can move in. As long as you investigate the possible options, including the available mortgage and assistance programs, you will be an educated consumer prepared to make an educated purchase.  Buying a home is often the largest investment that you will ever make, so you need to feel secure in the knowledge that you have invested wisely.

If you are interested in purchasing a foreclosure property, many realtors will offer you the benefit of their experience and expertise.  Realtors normally do not work with these types of sales every day, but they do have access to information and property listings that can help you decide whether buying a foreclosed property is the right option for you.