The housing market has various options to find out where to purchase your next home. One type of affordable type of home to think about is purchasing a home that faces foreclosure. Individuals can consider this option during the home buying process. This is because foreclosed homes are typically listed at a more affordable rate. The price can be reduced more than usual, but there is a catch. With foreclosed homes, the catch is that you will not be able to know the condition of the property. It could be a mess and you wouldn’t know it. There are many questions that you may have about purchasing a home that faces foreclosure. This article will hopefully offer a little clarity on some of your questions.

Foreclosure 101: Everything You Should Know

The process of foreclosure happens when a bank or lender takes over and owns a residential property. This happens because the borrower was not able to pay off their debt. A lender can be a mortgage firm and a borrower is normally the individual that lived on the property. Once the borrower leaves the property, the bank puts the property back on the market and attempts to sell it. This way, the bank can cut its losses from the borrower’s inability to repay the mortgage.

Properties that face foreclosure are normally sold at a reduced price or the bank sells the homes at auctions. Usually, families who cannot pay off their property loans do not have the money to pay for the property’s maintenance. This is why you should assume a lot of home repairs when you purchase a home that faces foreclosure.

Foreclosed Homes Are Cheaper Than the Market, But Why?

The main reason that prospective home-buyers think about buying properties that face foreclosure is the discounted price. These reduced prices are significantly lower than their comparable counterparts. You will find that these homes also come with extra reduced expenses. This could include a lower down payment, lower interest rates, and fewer closing costs. Homebuyers consider these types of homes because it takes advantage of the idea that the property sellers are struggling financially. For instance, a property that is currently in pre-foreclosure could mean that the sellers are desperate to sell the home. In that case, the homebuyers have an advantage while negotiating expenses.

Finding a Home That Faces Foreclosure

If you are interested in finding a home that faces foreclosure, you may not find it as easy as you would like. The most suitable place to begin looking for homes that face foreclosure is through multiple-listing service (MLS) websites, newspapers, and online searches. When you look through these homes, you need to be precise about the foreclosure mentioned. You may not find out about the home in the headline right away. You can, however, figure it out from the property description. You can also contact a local real estate agent and find any opportunities that they know about.

How Do Foreclosed Home Listings Operate?

When you are reviewing different properties that face foreclosure, you will find five different types of foreclosures. These five types are:

• Pre-Foreclosure Homes
• Short Sales
• Auction Homes
• Directly Buy It From by the Bank
• Homes that the Federal Government Owns

Pre-Foreclosure Homes

Pre-foreclosure properties are the beginning of the foreclosure process. This is when the lender files a notice of default on the home and informs current borrowers. Pre-foreclosure happens before the home is listed for sale at an auction. During the pre-foreclosure step of the process, the homeowner will get a letter that declares that the foreclosure process will begin. It is common to look for property owners that are attempting to sell their residence as a pre-foreclosure home. For the homebuyer, it is an advantage to look into pre-foreclosure homes because the owners are willing to sell the home as soon as possible to pay off their loan.

Short Sales

When the lender allows a smaller amount for the property than the mortgage amount, it is a short sale. Borrowers might not have to be in default for lenders to accept a short sale. If a lender accepts a short sale, then the current owner will need to present documents that serve as proof of financial struggle. When you are reviewing homes that face foreclosure, short sale properties are likely listed as pending bank approval properties.

When you buy a short-sale home, you will find that it is the same as the standard home buying process. The only difference is that you will see that the language in the contracts is different. You will find that the short sale purchase process can take a while, as opposed to a standard home buying process. That is why it is important to consider this when you look through your options.

Auction Homes

Once the grace period is over for the borrower to pay off their mortgage, after they are informed, a sheriff’s sale auction is the next stage. This auction’s aim is for the lender to receive payment as soon as possible since the loan is in default. You will find these auctions in different settings. Normally, you will find these auctions in front of an official building. Additionally, you will find signs that advertise the auction, too!

Directly Buy It from the Bank

When a home cannot get a sale at an auction, it will return back to the bank. That is when the home becomes a real-estate-owned (REO) property. In the end, you can make a world of a difference for yourself and buy the property directly from the bank.

Homes That the Federal Government Owns

If someone buys a home with a federally-backed loan, such as FHA loans or VA loans, then the government repossesses it–not a financial institution. Once the federal government repossesses the homes, then brokers that the government registers can only sell these homes. If you are thinking about purchasing a home that the government owns, then you will need to contact these brokers. Prospective homebuyers can review options online on the U.S. Department of Housing and Urban Development (HUD) website.

Disadvantages of Buying a Foreclosed Home

There are many pros to purchasing these forms of homes, such as the cheaper expenses. However, there are some disadvantages that come with buying a property that faces foreclosure. These disadvantages include:

• Issues with the home
• Hidden expenses
• Slow buying process
• Competitive markets

Issues with the Home

When you buy a property in its current condition, you will need to know that there are a lot of risks you could face. These risks could include major repairs on the property. There might also be minor repairs that you will probably need to deal with as well. You should also remember that past homeowners could be uncooperative. If an individual is going through foreclosure, then they can damage the property before the bank repossesses it. This means you will be in charge of cleaning up the mess they made.

Hidden Expenses

These properties could sound tempting which is why you need to remember that there might be hidden expenses that come with the property. Hidden expenses such as liens or back taxes can lead to more costs for a potentially damaged property. Make sure that you are careful about the hidden expenses that could follow a foreclosed home. You need to remember that you need to repay all the money before the purchasing process is finished.

Slow Buying Process

Normally, a foreclosure means lots of paperwork and a slow process. There are so many obstacles that you could go through during the home buying process. For instance, if the home has a lot of damage, you will find a lower appraisal value. The low home appraisal value can result in having a more difficult time securing financing options. This results in the purchasing process taking longer than usual.

Competitive Market

If there is a property that comes at a cheaper rate, then it will likely attract many homebuyers. That means that there is more competition on the property. When there is a high demand for a home, this could result in bidding wars on the home. If a bidding war takes a while, the home could become overpriced. Keep in mind that you should constantly check the bank because it is common for foreclosure deals to fall through.

Conclusion: Foreclosure Listings

Properties that face foreclosure are another option to think about when you want to purchase a home. These homes generally come at a cheaper price–but there is a reason behind the cheaper price! These homes were not properly maintained by their previous owners. That means that the lender is trying to cover any losses that they might be going through. If you want to look for these types of homes, then you can look through MLS websites, newspapers, and online searches. There are five common forms of foreclosed properties that you might come across. This includes:

• Pre-Foreclosure Homes
• Short Sales
• Auction Homes
• Directly Buy it from the Bank
• Homes that the Federal Government Owns

It is important to remember that the specific method to deal with the process of buying these properties will differ based on their type. There might be more options than you think when it comes to purchasing a home.