Foreclosure Offer Tips
Investing in a foreclosure can be a lucrative venture. Savvy investors understand that the return you make on a foreclosure is earned through due diligence. Price is not an indication of value. Prior to making an offer on a home, ensure you understand the investment fully. If you are in a seller's market, find ways to make yourself stand out from the competition to increase your chances of getting your offer accepted.
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Available, But Not Desperate
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When a foreclosure fails to sell at auction, it is returned to the lender. After the home is returned to the lender, it is considered real estate owned (REO). Lenders place homes on the market with the hope of recouping the outstanding balance of the mortgage debt. There is a common misconception among new investors that lenders are desperate to sell foreclosed properties. While lenders are not in the business of owning homes, they are not desperate to sell.
Lenders make their properties available to buyers who can help them make up for their losses during foreclosure. Stringent rules often apply when making an offer on a foreclosed home to ensure you don't waste the lender's time.
What to Offer?
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Often, the property description tells you how much to offer on a property. The term "as is" in the property description refers to the condition of the property and, usually, the lender's level of flexibility. If you are uncomfortable making an offer for the full amount of the purchase price, consider making a lower offer with a larger down payment to show you are a serious buyer. Avoid asking for more than 20 percent off the purchase price as it can result in a declined offer.
Most REO properties are represented by a real estate broker. Consult with the broker before submitting your purchase offer to gauge the lender's level of flexibility.
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Getting Approved
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Before making an offer on a foreclosed home, you must get an approval from a mortgage lender. Most lenders will not accept your offer without proof that you can afford to purchase the home. Proof comes in the form of a mortgage preapproval letter or a proof of funds letter from a financial institution. Photocopy your verification documents and submit them when you fax in your purchase contract.
Earnest Money
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Earnest money should always accompany your real estate purchase contract. Earnest money can be anywhere between 1 and 5 percent of the purchase price. Generally, the less you pay in earnest money, the less seriously the lender takes your purchase offer. There are exceptions to this rule, such as when paying cash for a home. Your earnest money check or money order should be made out to the escrow company and not the real estate broker representing the lender or the lender.
Considerations
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No two lenders are alike when it comes to selling foreclosures. Always get information from the real estate broker representing the lender to determine the lender's level of motivation. Generally, lenders grow increasingly more flexible the longer the house remains on the market. If you can wait several months instead of making an offer on a home as soon as it is listed, you may be able to get a better deal on the home.
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