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Purchasing a Foreclosed House

May 27, 2008  |  Difficulty: Easy

Cosy home
Homeownership is good, but sometimes it can have unexpected problems. If an owner cannot keep up with the mortgage payments, the lender will place that property into foreclosure.  Lenders usually work with a person to help them maintain their mortgage, because they make their money off of lending, not owning homes. But if the financial problems are too deep, the lender is then forced to foreclose the home and then sell the home to pay back the money of the loan.

Where can you buy these foreclosed properties? You can buy properties from a lender, or from a third party who is representing a lender. The lender can be a bank or a government agency such as HUD. These organizations have property because of the mortgage programs they have in place.

Smaller lenders have foreclosed homes only in certain areas. On the other hand HUD (The Department of Housing and Urban Development) has foreclosures all over the United States. Make sure you do a little research before deciding to buy from HUD, because the home buying process is a little different that of the regular housing market.

HUD’s foreclosed homes are sold with an auction-like process. There is a period where you can give a money offer. The offer can be submitted only through a real estate agent. Once the offer period is closed, HUD will review all the offers submitted. Usually the highest offer will be chosen. This process is risky, and you are not guaranteed to get the home you want.

The chance getting the house increases if the home is still not sold after the first offer period. When the home is still not sold you get a chance to re-place your offer, and it is a good chance that your offer may be accepted right away. If your offer is taken, your real estate agent will be notified within 48 hours. There will be a settlement date, typically 30-60 days after the contract is accepted.

If you are not buying fromHUD, it may take a little more time to find a property worth investing in. The upside to buying a foreclosure home is that you will save around 5% off of the regular price for a home. If the lender that foreclosed the property is still holding it, you can probably save up to 10%. Since the lender wants to sell that property to cover the lost mortgage, there may be other benefits such as lower closing costs, better interest rates, and a decreased down payment.

Magazines and newsletters can have listings of properties that are in foreclosure by the lender. But if this information is in a magazine this may mean that a third party is already involved, making the saving a little lower. However, a lot of lenders release public records stating the location of the properties that have been foreclosed. If you get the information straight from the lender, it is possible that you can save more.

When you find a house that seems worthy, start by looking if there are liens on the house. Liens are placed on properties due to unpaid property taxes, and these liens can be expensive. The house is being sold to pay back lost debt, so if the lender and the liens are owed, the house can be pretty costly. Be sure to look out for this.

After researching this information, you need to decide if the overall price is a good deal. A great way to see if the house is reasonable or too costly is to check the value of other houses in the neighborhood. Although some foreclosure properties can save you tons of money, in some instances this may not be the case.

You must then know the steps needed to purchase. State foreclosure laws differ, and you should know what rules and regulations apply to your area. Some states such as New York, Ohio and Florida require a judicial foreclosure; this mandates the lender to sue the borrower to get a legal order for the right to sell the property. Other states, such as Texas and California, follow a non-judicial foreclosure method. This means that a legal order is not needed to sell the house. The states that follow the judicial foreclosure method will have a higher property price in the end. The lender will want to cover the cash lost during the legal process.

Typically, purchasing a foreclosed property straight from the lender is the most secure way to go about this process.

If you are looking to buy a home from a bank, express interest in that property before a real estate agent is involved. Once the home is ready to be sold in the more typical manner, the savings will be decreased. Talk with bank loan officers, who have low offers, about the properties that are in the beginning stages of foreclosure. The bidding process can be easy if the bank has a real estate owned officer (REO). If you can place a low, but reasonable offer to the banks REO before the property goes into the later stages of foreclosure, it is a good chance that you can get a fantastic price on that home!

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