A foreclosure takes place when an individual purchases a home yet does not pay the mortgage payments. When this occurs, the bank financing the property will repossess the home and attempt to resell it to recover the balance owed on the original mortgage. Depending on how much the borrower owed on the home and how long the home has been on the market, you may find that you are able to purchase the property below market value. Purchasing a foreclosure home, however, is a slightly different process than a standard home purchase and should be approached as such.
Instructions
1. Know what to expect. A foreclosure home may be cheaper than a standard home purchase, but many borrowers do extensive damage to their homes or strip them of items such as carpet, appliances and fixtures before the foreclosure. Your savings can be reduced or eliminated if you must conduct repairs to make the home habitable.
2. Find a real estate agent with experience helping buyers to purchase foreclosure homes. The negotiation and closing process is different when dealing with a bank rather than a private seller. Having a real estate agent with previous experience can give you the upper hand.
3. Use Zillow and the MLS to find foreclosures you are interested in. Zillow is a website that shows a map of your area and pinpoints all homes currently for sale on the map. It will identify for you whether a home is a foreclosure and how much the property originally sold for. The MLS can be accessed by buyers through Realtor.com and also lists the homes for sale in your area. Some properties appear within the MLS that do not appear on Zillow and vice versa. Real estate agents are only human and can easily miss foreclosure homes as they come onto the market. It is important that you also know conduct the search for yourself.
4. Get financing. Many banks require you to provide proof of financing before they will consider your offer on a foreclosure home. The type of financing you have also makes a difference. Some banks will not sell foreclosed properties to individuals who obtain FHA financing due to the strict requirements FHA places on the appraisal.
5. Decide how much you are willing to offer on the foreclosure home. Unlike private sellers, the bank will always issue you a counteroffer if you offer less than the asking price of the property. Because of this, you should always originally offer much less than you are willing to pay and negotiate upward.
6. Select your closing date and submit your offer through your real estate agent. The sooner the closing date, the more likely the bank is to accept your offer on the home. Banks do not like to hold on to real estate and want to sell it as soon as possible. Your completed offer should include the price and the closing date. When your offer is accepted, you will then have a contract with the bank.
7. Ask the bank to conduct any necessary repairs to the home before closing. Although this is standard practice with traditional home purchases, a common misconception is that banks will never finance repairs on foreclosure properties. This is not true. If a foreclosure home has been on the market a long time, a bank may be willing to pay for repairs simply to sell the home--provided that your request is reasonable.
8. Close on the property on the date specified in your contract. If you must extend closing for any reason, the bank has the right to charge you a penalty fee for each day that you are unable to close. Check with your lender to make sure that your loan will be processed in plenty of time for the closing.
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