Things to Know about Buying Foreclosures
Are you thinking about buying a foreclosed home for yourself or as an investment? Due to the fact that foreclosures are sold below market price, you will definitely get a great investment when purchasing a foreclosed home.
Even though you might not spend as much money on a foreclosed home as you would on a conventional home, before making a lifetime investment you should know in what you invest. Therefore you should start getting familiar with foreclosures and how to prevent from the risk to invest in the wrong property.
What does foreclosed mean?
Foreclosed means, that a borrower/owner cannot pay the loan or mortgage payments back. The lender has to secure the loan and starts the foreclosure process.
The pre-foreclosure process in California starts from the time the borrow/owner misses his first payment. The owner will receive a “Notice of Default”. From then on the owner has 90 days time to find the missing payment, within this 90 days of notice the mortgage company will prepare to bring the home on the market. The foreclosure sets in after the 90 days and the owner will receive a “Notice of Sale”.
How you benefit from buying a foreclosed home
- Buying a foreclosed home means you spend less money on a property with more market value
- Some lenders are willing to lower the down payment or interest rate or will not charge closing costs since the mortgage is in default
- You have a wide selection on foreclosed homes
- The property can be sold for more money later
What you should know before buying
It’s important that you work with an agent or broker who is experienced with the process of buying foreclosed homes.
Before putting down an offer you need to know what you are buying. It is important that you have the property inspected by a home inspector and find out about the real conditions of the property.
Don’t buy a property you have never seen at an auction. Instead buy REOs through a real estate agent.
The foreclosure process has 4 steps. For you the buyer it is important to know in which state the property is for your strategy to buy.
You need to know that many laws that usually protect you in a conventional real estate transaction do not apply to a foreclosed property.
The property will be sold under market price but might need some renovations. When buying a foreclosed property you have to keep that in mind when making your calculations.
Always do a title search on a property. You have to know if there are any existing encumbrances or liens on the property. Oftentimes property taxes need to be considered.
In some cases the previous owner refused to move out and vacant the property even after the title was transferred. This will lead to an eviction process and you as the new owner have to evict the tenant.