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The Secret to Buying a Foreclosure That Isn’t a Dud

October 16, 2019

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Who doesn’t love a bargain? Nabbing a great deal on a house is every home buyer’s dream. One way to make it come true is by purchasing a foreclosed home.

The caveat? Buying a foreclosure isn’t like buying an ordinary house. It’s important to understand what, exactly, a foreclosure is, how to find one, and how to pay for it.

Here are six crucial questions to ask yourself before purchasing a foreclosure.

What is a foreclosure, exactly?

When a property enters foreclosure, the homeowners’ mortgage lender repossesses the house for lack of payment (i.e., the homeowners defaulting on their mortgage) and then sells it, to recoup some of its money. Foreclosed homes are sold at a public auction to the highest bidder, and the buyer can’t even go inside before the purchase. If the house doesn’t sell at auction, it becomes what’s known as an REO, or real estate-owned property, where the bank looks for a buyer through traditional means, like advertising the property in the multiple listing service (MLS).

Since banks are often eager to unload these foreclosure properties, they aim to break even with an asking price that’s typically the sum of the remaining mortgage note, plus interest, lawyers’ fees, and penalties. On average, this ends up at about 15% below the home’s actual value, enabling home buyers to score a terrific bargain.

How do I find foreclosures in my area?

The best way to find foreclosures depends on where you live. (Here’s where you can search foreclosures in your area.) Foreclosures might also be marked as “bank-owned” or “REO.” If you spot a home you like, contact the real estate agent on the listing as usual.

Am I willing to buy a home ‘as is’?

Generally, foreclosed homes are sold “as is,” meaning that the house is being sold in its current condition and cannot be inspected for structural problems, mold, infestations, or other issues before the auction. Buyers of REO properties, though, can perform a home inspection, but the bank usually won’t fix any problems with the house or offer any kind of credit at closing.

Naturally, these conditions can be a deal breaker for some home buyers, says Cathy Baumbusch, a real estate agent with Re/Max Allegiance in Alexandria, VA. “Keep in mind that a foreclosed home sold at the courthouse is bought without warranty, and sight unseen,” Baumbusch cautions.

Read: You have to be willing to assume some risk if you’re going to buy a foreclosure.

Can I qualify for a mortgage for a foreclosure?

Financing the purchase of a foreclosed home can be trickier than getting a regular mortgage. Some lenders don’t want to fund the purchase of foreclosure homes, especially if the property requires heavy-duty TLC. This forces home buyers to buy foreclosures with all cash, or to find a mortgage lender that is willing to take on some risk.

To qualify for a mortgage to buy a foreclosure, you’ll have to meet the same credit score requirements that apply when obtaining a mortgage for a traditional home.

A credit score of 620 is generally considered the minimum, says Gaurav Mahajan, vice president of residential lending at Draper and Kramer Mortgage Corp. Many lenders, though, are willing to work with applicants with lower credit scores by offering them Federal Housing Administration (FHA) loans, which are available to applicants with scores as low as 580.

Not sure what your credit score is? You can get a free score online at CreditKarma.com. You can also check with your credit card company, since some (like Discover and Capital One) offer a free credit score.

Will I have enough money left over to pay for renovations?

Often, buying a foreclosure means you’re buying a fixer-upper that may require extensive home improvements. Hidden expenses could be lurking beneath the surface, like electrical or plumbing problems. Depending on the house’s condition, you may need tens of thousands of dollars to make these changes.

As a result, you’ll want to have a good chunk of cash in your pocket after the purchase is complete, to pay for home improvements and repairs, so don’t stretch yourself too thin with your offer.

How long am I willing to wait for the sale to go through?

Buying an REO? It can take a while for the foreclosed home to be sold after the bank accepts your offer, potentially several months (as opposed to a traditional home sale, which takes about 30 to 45 days to close).

Why so long? One reason is because asset managers at banks often have backlogs of work, which can make the closing process a lot more time-consuming. It may also be more labor intensive, depending on whether there are liens on the property. Therefore, patience is key.

Bottom line? Buying a foreclosure isn’t a decision to make lightly. It takes careful planning, an honest assessment of your risk tolerance, and finding the right property, if everything is to work out in your favor.

The post The Secret to Buying a Foreclosure That Isn’t a Dud appeared first on Real Estate News & Insights | realtor.com®.

Facing Foreclosure? Here’s When You Actually Have to Move Out

July 31, 2019

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During the housing crisis of the early 2000s, foreclosure numbers were at a record high. Thankfully, the market has since turned around, but that doesn’t mean foreclosures are necessarily a thing of the past. In 2018, there were over 600,000 reported foreclosure filings in the U.S. alone, according to ATTOM Data Solutions, a real estate research company.

Whether or not you’ve gone through a foreclosure before, the process can be emotionally and logistically difficult. There’s the financial stress, the challenge of finding somewhere to live, the logistics of moving your things, and the ordeal of planning for the future.

With so much going on, it’s important to know what to expect. But unfortunately, foreclosure laws and practices can be confusing. This is partly because the laws differ by situation and by location.

“States have all kinds of different foreclosure rules,” says Bryan Zuetel, a real estate attorney and real estate broker in California’s Orange County. “The process will depend on each state’s foreclosure laws.”

Still, one thing homeowners faced with foreclosure need to know is how long they have before move-out day. Here’s how long you can expect to stay in your house when it’s in foreclosure.

Beginning of the foreclosure process

First things first: Know that a homeowner isn’t automatically in foreclosure at the first sight of a late bill.

Yes, a borrower is considered “delinquent” as soon as a mortgage payment is late. But, being late on a deadline doesn’t necessarily mean you’re headed for foreclosure.

Once the borrower misses a payment, federal law states that the lender must wait 120 days before starting foreclosure proceedings.

During this time, you might be able to strike a deal with the lender and change your payment plan.

“The bank does not want to take back a home and almost always loses money when they do,” says Rick Davis, a real estate attorney in Olathe, KS. “Therefore, they will often work with borrowers to find solutions that allow the money to be repaid while the borrower keeps ownership of the home.

If an agreement isn’t reached, though, the lender can start proceedings after those 120 days.

When do you have to move out?

If eviction isn’t part of the foreclosure, you’ll probably be able to live in the house until the lender finishes the foreclosure process and sells the home.

“Usually, people will leave the home when the foreclosure is completed and they are no longer the owner,” says Zuetel, but there’s no exact rule on how long this process will take.

In fact, the length of the foreclosure usually depends on a few factors, including state laws, how quickly the lender can move the process along, and what kind of foreclosure it is.

In some states, Davis explains, “the lender can utilize a nonjudicial foreclosure, which means that the property is sold on the courthouse steps without going through court. In these instances, the property may be sold in as little as 30 days.”

But when it comes to judicial foreclosures (foreclosures that go through the courts), it can take months or even years, according to Davis.

Even then, there are some special cases where you wouldn’t have to leave as soon as the house is sold. If your state requires the court to get confirmation on the sale, you may get some extra time.

“Pay careful attention to the notices you receive from the lender or their attorney,” Davis says. “All of the information related to deadlines, court dates, and sale dates will be in these notices.”

Redemption period

Another way you might get to stay put in your home for a little extra time is if your state allows for a redemption period—that is, a period when a foreclosed homeowner can buy back the property.

If you can either reimburse the new buyers for what they paid for the house or repay the mortgage debt, you can redeem the house and take back ownership.

Still, the actual rules of the redemption period vary by state. Because of this, it may be best to contact a local attorney and find out how much time you have. In some states, the redemption period could be as short as a few days, or, says Davis, as much as a year after the sale. But be careful, because you might be required to leave the house before that redemption period is actually over.

Eviction and eviction suits

Even when it seems like you’ve come to the end of the foreclosure period, there may still be some time before you actually need to move out of the house. When you receive an eviction notice, you’ll be told how long you have before you need to be out. Most people get three days’ notice.

If you don’t leave in this time frame, the new owner can file an eviction suit (also known as an unlawful detainer) in court. Proceedings could take weeks, so you could enjoy that extra time in the house, free of charge.

However, while some extra time in the house might sound great, it’s probably better to move out before this happens. If you’re sued for staying past the eviction date, it could hurt your chances of being able to rent or own property in the future. Furthermore, your credit score could be damaged.

No matter what path you go down in the foreclosure process, it’s important to know your options.

“Homeowners faced with foreclosure should consult with an attorney specialized in residential real estate foreclosures,” says Zuetel. If you can stay informed, you just might get through the process a little easier.

The post Facing Foreclosure? Here’s When You Actually Have to Move Out appeared first on Real Estate News & Insights | realtor.com®.

Watch Out for These Surprises That Can Drive Up the Cost of Buying a Foreclosure Home

July 29, 2019

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Buying a foreclosure home, also known as a distressed property, might seem like a less expensive way to get into your next place. These homes usually sell for about 15% below the home’s actual value. But buying a foreclosure property isn’t always what it seems. While it may look like a bargain, it could end up being more expensive (and more trouble) than it’s worth.

“On the surface, foreclosed homes can seem awfully appealing,” says Beatrice de Jong, consumer trends expert at Opendoor. “However, costs can be extremely unpredictable, and underlying damages could make a property undesirable.”

With big risks associated with foreclosures, a buyer could end up with a money pit, rather than an affordable new home. That’s why you should always budget for the worst-case scenario.

“It’s better to be pleasantly surprised than to not have the funds to solve the problem,” says Avery Boyce, a real estate agent with Compass Real Estate in Washington, DC.

Here are some of the hidden costs you need to look out for when considering a foreclosure home.

Home repairs

Foreclosures are likely to need some work—and the list of needed repairs and renovations can be long indeed. The worst part is, you might not even have a ballpark estimate of what repairs are needed until you receive the keys.

“The bank will be limited on the disclosures they can provide regarding the condition of the home and previous repairs done,” says de Jong.

In some cases, you can get a home inspection before finalizing the sale, but often, a foreclosed house is sold as is.

“Keep in mind that if the previous owners couldn’t make their mortgage payments, they likely also fell behind on regular maintenance,” de Jong says. “The home may have foundation problems, need a roof replacement, and require a heavy workload to bring the home up to code.”

The property could have also been sitting there, uncared for, for a while. You might have to factor in the additional costs from overgrown lawns, graffiti, weather damage, and more.

Paying too much in a bidding war

Buyers—especially those purchasing a home for the first time—should be careful to not get stuck in an expensive bidding war. Why? They could end up paying too much for a house that they can’t afford to fix.

There can be a lot of competition from other eager buyers, real estate developers, and flippers.

“For damaged homes that are priced well below market value, you will probably be competing with developers who plan to rip out everything anyway, and can afford to solve big unknown problems,” Boyce says.

Steer clear of a bidding war and avoid busting your budget on a home that needs more work than you can afford. Before making an offer, set your upper limit, and stick to that number. There will be other houses later on, and it’s often better to play it safe when it comes to foreclosures.

Challenges in getting funding

Even if you can get a great price on a foreclosure property, many buyers will still need a loan to help them purchase it. Before you make an offer on a foreclosure, don’t bank on being able to get a mortgage.

Some lenders simply won’t offer funding for foreclosure properties. The most common reason: The house is in such bad condition, it can’t pass an inspection.

“To get traditional financing, the home needs to be in really good shape,” Boyce explains. “All the utilities need to be on and testable, there can’t be holes in the drywall or floors, and there can’t be water inside the home.”

Plus, most banks favor all-cash offers on foreclosures because they have already lost money on the property and they don’t want to end up in the same situation again.

If you can’t do all cash upfront, it is likely to help to get pre-approved, and it also helps to be willing to put down 20% or more. This way, at least the bank knows you’re serious about buying the house and paying the mortgage.

No room for negotiation

When buying a home the traditional way, the seller may be willing to negotiate on the price. You submit an offer, the seller might counter, and in the end, you could end up paying less than the asking price.

“Dealing with the bank is a more formal and corporate process than dealing with a seller, so expect limited flexibility, if any, when negotiating on the offer price,” de Jong says. “Banks are not likely to budge on the price, since they are mostly concerned with recouping the costs from their investment.”

However, if you’d like to test the waters, Boyce suggests you ask your agent to search for past sales by the bank to see whether the sale price is lower than the list price.

“That will give you some insight into whether it’s worth submitting a lower offer,” she says.

Property tax increases

If, after learning about all these hidden fees, you’re still seriously considering a foreclosure, you’ll be aware that some properties will need to be overhauled. And while you might be ready to put some serious cash into the project, know that there’s an extra fee associated with a major home makeover: increased property tax. Fixing the house up will increase its value, and in most places, that means your property tax bill will go up.

This may seem like a no-brainer to some seasoned homeowners, but it’s important to remember this tax increase when budgeting for repairs. Don’t get stuck going all in on a home and finding yourself strapped for cash when it’s time to pay taxes.

The post Watch Out for These Surprises That Can Drive Up the Cost of Buying a Foreclosure Home appeared first on Real Estate News & Insights | realtor.com®.

7 Myths About Buying a Foreclosure Home That’ll Surprise Deal Seekers

July 2, 2019

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Considering buying a foreclosed home? Any home buyer looking to pay below market value should be paying attention to foreclosure listings. But the process of buying a repossessed home is full of misconceptions—and we’re here to help separate the false stereotypes from the reality.

These are some common myths that need to be set straight.

Myth 1: The house must be bought in cash

That all depends on what stage a foreclosure property is in, says Bill Gassett with Re/Max Executive Realty in Hopkinton, MA. If the home is in pre-foreclosure or “short sale,” the buyer does not need to shell out an all-cash offer.

“They can procure a mortgage just like any traditional sale,” Gassett says.

If the bank sells a property at public auction, the mortgage holder usually does require that the home is bought with cash and mortgage contingencies are not allowed in the sale.

If you don’t have a lot of cash on hand but know you’d like to buy a home in foreclosure, Bobbi Dempsey, author of “Idiot’s Guide to Buying Foreclosures,” suggests drawing from a line of credit obtained using current property.

When the foreclosure is a bank-owned property, Gassett says the bank is usually actively looking for an end buyer.

“The purchaser of a bank-owned property is almost always able to procure a mortgage as part of the contract with the bank,” he says.

Myth 2: Buyers forfeit their right to have a home inspection

Definitely not true! Buyers have the right to do a home inspection and ask for repairs, but banks or sellers aren’t required to make them, says Rob Jensen, broker and president of Rob Jensen Co., in Las Vegas. But home inspections are actually encouraged since nearly all banks sell their foreclosed homes in as-is condition, and want to avoid liability down the line.

“It is common for structural, electrical, and plumbing issues that pertain to the safety and integrity of the home to be repaired, but there’s no guarantee,” says Jensen. “Every bank and every deal is different.” However, don’t count on the bank to fix those cosmetic issues.

Jensen says paint, carpet stains, and other minor blemishes are not likely to be addressed.

Buyers considering a foreclosure should make sure the sales contract has a contingency clause that requires a passing home inspection. This way, buyers can either choose to accept any issues with the home or back out of the contract.

With courthouse sales, however, homes are sold as they are, with no inspection.

Myth 3: Foreclosure homes require huge overhauls

It’s incorrect to assume that all homes in foreclosure are in shoddy condition. A large percentage of foreclosures are the result of job loss, illness, death, divorce, or even fluctuations in the real estate market, which means many of these homes were well maintained and may need only minor touch-ups.

“It quite often depends on the attitude of who last owned the property and whether or not they went out of their way to destroy the place,” says Jensen.

Myth 4: Foreclosures sell at heavy discounts

A common belief is that a foreclosure home will sell for at least half of its original value. But remember, the bank still wants to make a profit. Buying a foreclosure home can save you green, but the seller will hold out for the maximum price possible.

Home buyers often make a beeline to foreclosures because they think they can get a home for pennies on the dollar. But, Jensen says, by the time they factor in the time and renovation costs, they may reconsider.

“Foreclosures can provide opportunity to save, but you usually need time and extra cash to take advantage of it,” he says.

Myth 5: Foreclosure homes carry hidden costs

The fear of hidden costs may send would-be buyers running, but it’s not necessarily a worthwhile concern.

“A lot of the costs involved are typical for any real estate purchase—things like inspections, appraisals, transfer fees, etc.,” says Dempsey.

Yes, repairs or liens on a foreclosure can prove costly, but a home inspection will reveal any potential problems during escrow (this is where that inspection contingency comes in handy).

Also, the property deed can be researched on a foreclosed home. And, buying a HUD home or REO (or real estate–owned property) means the Department of Housing and Urban Development is required to clear the title of liens before it resells the home. Lenders will usually clear them, too, but buyers should make sure of that before they purchase.

“Generally speaking, there are not any more hidden expenses in purchasing a foreclosed home than there would be in a traditional sale,” says Gassett.

Myth 6: Foreclosures lose value faster than regular homes

Foreclosed homes actually tend to rise quickly in value. With any home, there’s no guarantee it will deliver increases, but buying a foreclosure sold below market value can provide instant equity. And any extra work done to the home can only increase the value.

“There are a variety of factors that influence home values, including economic conditions, local market conditions, and the overall condition of the property,” says Andrew Leff, senior vice president and head of strategic alliance programs at Wells Fargo in New York City.

Myth 7: Buying a foreclosure is risky

Let’s be honest. Any real estate purchase comes with risk. Gassett says the only scenario where there’s some extreme risk is when buying at auction, since you are buying the property as is. Buyers are not able to conduct a professional home inspection and often not even able to see the inside of the property. Plus, they will be inheriting whatever came with the home.

“For example, if there is a lien on the property, you could become responsible for it. When buying a home at auction, it is essential to do a title search first,” says Gassett.

Leff says buyers should be informed before entering into any type of real estate transaction. This means aligning themselves with resources that can help them navigate the purchase and financing process with confidence.

“A knowledgeable real estate agent and lender can help ensure that a buyer is making an educated decision so that the property and any resulting financing is the right fit for them,” says Leff.

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