How to Buy a Foreclosed or Bank Owned Property

You can find a bargain when buying a foreclosed home.

A total of 2.8 million U.S. households received foreclosure filings in 2009, an all-time record, according to the website RealtyTrac. Buyers looking for real estate bargains can often purchase these foreclosed or bank-owned properties for low prices. Buying a foreclosed home, though, isn't the simplest of processes. You'll have to find these properties first, and you'll often have to work with real estate agents who are approved by the U.S. Department of Housing and Urban Development (HUD). But for those with the patience required, there are good bargains to be found in the world of foreclosed properties.

Instructions

1. Find a real estate agent with experience in foreclosed home sales. You can buy some foreclosed homes on your own, but it's not an easy process. A real estate agent can help you find foreclosed properties that haven't yet been listed, and can help you negotiate the best prices for them. You are also required to work with a HUD-approved real estate agent to buy any of the foreclosed properties offered through that government department. Make sure your agent is approved to work with HUD properties.

2. Get a pre-approval letter from a mortgage lender. This requires you to call a lender and send that lender copies of your most recent federal income tax return, last two paychecks, bank savings and checking account statements, other loan statements and credit card bills. Your lender, relying on your gross monthly income and monthly debt levels, will determine how much money you can borrow. Your lender will then send you a pre-approval letter stating this amount. This makes you a far more attractive buyer to the banks that are selling foreclosed properties.

3. Search the housing page of the HUD website. This page allows you to search for foreclosed properties in your state. It is one of the largest listings anywhere of foreclosed homes.

4. Search commercial websites that list foreclosures, such as RealtyTrac.com and Foreclosure.com. These sites list foreclosures that do not appear on the HUD page.

5. Ask your real estate agent to show you any local foreclosed properties that haven't yet been listed on the Multiple Listing Service. Agents often know when their fellow agents are preparing to list a foreclosed home. If you can see it before others do, you might get an even better price.

6. Schedule showings of any foreclosed properties that interest you. Have your real estate agent write up an official offer on a property if you want to buy it.

7. Hire a home inspector if your offer on a foreclosed or bank-owned home is accepted. Many foreclosed homes are sold as-is, including HUD homes. If you complete the purchase of one of these homes and then later find that, for example, the foundation is sinking, you will be responsible for any repairs. If you find the problem before closing your offer, you can still walk away if that's the right financial decision for you.

Tips & Warnings

• Despite the persistent rumor, you will not be able to buy a HUD home for $1. That's an urban legend. HUD homes are usually offered at below-market prices, but you won't be able to get one for next to nothing.

References

• RealtyTrac: Year-End Report Shows Record 2.8 Million with Foreclosure Filings in 2009
• U.S. Department of Housing and Urban Development: Homes for Sale
• Foreclosure.com: Foreclosure Listings