How to Purchase Pre-Foreclosure Homes
Purchasing pre-foreclosure homes is a great way to invest extra money and give families a chance to continue living in the home of their dreams. Lenders of these pre-foreclosure homes see a short sale as a way to regain -most of the money lost and avoid lengthy and expensive foreclosure proceedings. By providing the seller options such as rental, lease or a contract for deed, you can make money on the transaction while offering the current family an opportunity to remain in their home.
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Instructions
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Locate a property in pre-foreclosure. Many investors do this by taking out ads to buy homes in any condition. It is also possible to buy a list of pre-foreclosure properties from a marketing company or go to a local courthouse to view property records. The most personal way to find out about pre-foreclosure properties is to set up a relationship with local real estate agents and build a reputation for helping families in desperate need of selling a home before the bank repossesses it.
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Research the condition of the home. Any major purchase in the real estate market requires research and due diligence in finding the appropriate match. The home needs to be livable and able to pass all building inspections. Other important aspects of this research phase is to establish the value of the home, neighborhood condition, and the home seller's ability to repay a loan. This is especially important if you intend to let the current family remain in the home and do a lease option, rental or contract for deed with them.
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Get pre-approved for a short sale mortgage. Before making a purchase offer to a mortgage company, it is important to secure your own financing. This will require you to provide proof of a solid credit history, details of the note between you and the seller, and your individual financial information in case the seller is not able to pay the loan. The mortgage company will be most interested in your ability to pay the loan back regardless of if the current homeowner remains in the home. So it will be necessary to provide a strong credit history and income to support your purchase of the home.
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Make a purchase offer to the mortgage company of the home in pre-foreclosure. Even if the seller has agreed to sell you a property, it is the mortgage company which holds all the power in the end. The mortgage company has to release the seller from his contract and accept the new contract from you. This process can sometimes take several months, but it is usually completed in less than 30 days. The proposal to the pre-foreclosure bank should include details of the contract with the seller, a hardship letter from the seller stating he is not able to bring the mortgage current, and a statement of the property's value. The sole purpose of your proposal is to convince the seller's mortgage company that taking a loss now will be less than the cost of a lengthy foreclosure proceeding.
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Finalize the purchase of the pre-foreclosure home. Mortgage companies want to make a good deal. They do not want to lose money by litigating a foreclosure if there is someone else in line to take over a loan. But some mortgage companies have dozens of hoops to jump through before they will approve such an offer. Some documents that may be required include the buyer's financial history, proof of homeowners insurance and any adjustments to the purchase contract between the seller and buyer.
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Tips & Warnings
The best pre-foreclosures are those that have a high balance to value ratio. These sellers will be most highly motivated to have a buyer come in and take over their financing.
Pre-foreclosure purchasing is an extremely emotional process. The family should be treated with respect and dignity at all times. The best investors in this field are able to truly negotiate a win-win deal for the family, the bank and their own investment.
References
Resources
- Photo Credit house image by Earl Robbins from Fotolia.com
