How to Buy A Foreclosed House

When a homeowner is unable to pay his mortgage, the bank that holds his loan gains possession of the home. Subsequently, the bank lists the home for sale as it does not benefit from holding the home in its portfolio. Such homes, commonly known as foreclosure homes, can be purchased at or below market value, which could save you money depending on the region. You must, however, meet the financial requirements set forth by the bank that holds the home before you can proceed with purchase.

Difficulty:

Moderate

Instructions

Things You'll Need

• A letter of Approval from a bank or "Cash".
• A Licensed Realtor or Attorney familiar with Bank Foreclosures
• The "Guts" and "Gumption" to see a project through to completion!

1. Contact a lender for mortgage pre-approval. Fill out the lender's loan application and provide him with your social security number and date of birth to pull your credit report. Your lender may pull your credit from one or all three credit bureaus -- Equifax, Experian and Trans Union -- depending on its policies. You can also provide your lender with tax returns and pay stubs to get a more firm pre-approval. Provide the lender with copies of bank statements and statements from other financial accounts to show your ability to pay the cash down payment required for foreclosure home purchases.

2. Hire a licensed real estate agent or an attorney who specializes in foreclosures. Interview your potential agent or attorney to confirm his knowledge and experience handling foreclosure sales. He may require you to sign an exclusive agency agreement, meaning an agreement that allows you to work with him only, or may require you to pay a retainer for his services.

3. Research the terms of sale for properties of interest. Some foreclosed homes, especially those listed by Housing and Urban Development and the Veteran's Administration, require you to live in the home, commonly known as owner-occupancy, depending on how long the property has been on the market. In such cases, fixing up the home for immediate sale, or flipping, could be illegal. You also should ask your agent for a comparative market analysis, or CMA, to determine how the foreclosure price compares to current homes on the market and recent sales in the neighborhood.

4. View foreclosure homes of interest. Drive past foreclosure homes to get a feel for the neighborhood on your own to save time. View the property's interior with your agent as such properties are generally vacant and banks do not allow members of the public inside without agents. Make a list of any major defects you see in the home. View the home during daytime hours, if possible, since banks often cut off power and other utilities in foreclosed homes.

5. Conduct a property inspection. Unlike individuals from whom you buy homes, banks to not provide home inspection contingencies. You must, therefore, inspect the property on your own before bidding on the home. Hire a home inspector with experience inspecting winterized homes, or those homes where the utilities have been turned off for an extended period of time. Such an inspector will know how to turn on the utilities correctly to prevent flooding and other damage for which a bank could hold you responsible. You can decide if you wish to proceed with the bid based on the home inspection findings.

6. Place a bid on the home. Some banks require bids in certain formats and others allow you to submit the standard sales contract used by the local real estate board. Your agent will advise you as to whether you should attempt to negotiate a lower price or offer the bank asking price. Price reduction generally depends on property condition, location and how long the home has been on the market. Your agent will present your bid to the bank for acceptance or rejection. If accepted, comply with your lender's requirements and seek final loan approval before the closing deadline.

Tips & Warnings

• Do your research.

• Be persistant.

• Be successful.

• You must have a rock-solid loan approval before making a bid on a foreclosed home. Most banks require closing in 30 days or less, and you may lose your cash deposit if you are unable to secure financing before the closing date.

References

• The Home Buyer's Advisor; Andrew James McLean