Best Way to Buy a Foreclosure
Buying a Foreclosure
The foreclosure crisis has been going on for a while but there are still opportunities for today’s homebuyer. There are plenty of REO, which stands for real estate owned, properties on the market. When banks foreclose on a home they refer to the property as an REO. These REO properties have their unique quirks but they can be a great opportunity for a buyer if you are prepared. Preparation entails having your financing lined up, finding the right realtor to represent you, knowing the market for the location you are interested in, etc. Additionally you want to be aware of the special issues involved in purchasing a foreclosure including how to conduct inspections and negotiate for the best deal.
The first step in purchasing a foreclosure or any home is to have your funding ready. If you are purchasing cash make sure that your funds are liquid.
Get our Money Ready and Accessible
Remember that when you purchase a foreclosure banks are very firm on deadlines. Some banks will not grant extensions to the closing date. You could potentially lose the deal and even your earnest money deposit. Money tied up in investment accounts or IRA accounts may not be able to obtained as quickly as you may think. Be sure and study your circumstances carefully.
If you are obtaining financing be sure and get a preapproval from your lender. It is not enough to just obtain a credit approval and complete a loan application. Provide your lender all the documentation for the loan. Ask you loan officer to verify that your documents are sufficient. Overtime income, bonus income, and any income from self-employment are treated differently than salaried income. Additionally if you have any income from rental properties you will need to provide specific documents. It is best to prepare all these documents upfront and save the headaches and stress of dealing with such issues while you are under contract with the seller.
Read the Bank Addenda
The next step is to have a realtor represent you. Find someone you feel comfortable with and that is experienced in the area of interest to you. When you have located a foreclosure listing of interest, ask your realtor to get all the bank addenda for you. Normally REO listing agents will upload the bank addenda on the MLS for other realtors to review. Reading the addenda will prepare you in making the offer and give you an overview of the expectations of the bank selling the property. The bank addenda tend to be lengthy and wordy, however, it’s important to read it carefully. In most cases you probably will not be able to cross out or change the wording of the addenda. There is usually a blank section for provisions. Be sure and request an inspection period. Most banks allow this. It’s important to determine the status of utilities. Clarify in the contract negotiations who is to turn on the utilities and when they will be turned on. It’s also important that your inspection period begin only after utilities are turned on. Again this should be negotiated upfront. Finally provide for the termination option and a return of any earnest money deposit should the inspections not be to your satisfaction.
Additionally, if you are a cash buyer be sure to request a survey. If you are obtaining financing, most lenders will require a survey. However, cash buyers feel that they can save a few hundred dollars by skipping the survey. The survey provides valuable information such a flood zones, encroachment issues, etc.
Now that you know the key points you will be well prepared to obtain a great deal when buying a foreclosure.