How to Buy Foreclosure Homes
A buyer's guide to foreclosed homes. Tips, tools and techniques for buying foreclosure properties the right way.
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Welcome to the foreclosure buying section of the website! Here, you can learn how to buy a foreclosed home the smart way, and you'll also have access to some useful tools such as foreclosure listing services and tracking tools.
View Listings In Your Area
This lesson delves pretty deep into the subject of foreclosed home buying. But if you already understand how the process works, and you're ready to locate foreclosure listings in your area, you can sign up for a free trial of RealtyTrac today. Their service will allow you to view foreclosure listings in your area, which is obviously the first step to buying such a home.
The housing and financial crisis that came to a head in 2008 has left many people without homes. Since then, we have seen foreclosures occurring in record numbers across the country. While this is clearly a hardship for the homeowners, it's also a good opportunity for real estate investors and home buyers.
This is why so many people want to know how to buy foreclosures these days — it's an opportunity to get a home for less than market value.
Disclaimer: We are not suggesting that you invest in foreclosed homes. That's a decision you will have to make on your own. This tutorial was created for investors who have already decided to buy foreclosure properties and are now researching the process that's involved with such a purchase.
The Benefits of Buying Foreclosure Properties
If you're researching this topic for the first time, you're probably wondering why so many people are interested in buying foreclosure homes is in the first place. What's the benefit to this kind of investment? Why are real estate investors drawn to properties that have been foreclosed upon?
Here's what it all boils down to. People buy foreclosures because you can usually get them for less than their market value. When a homeowner fails to make their mortgage payments (and they are unable to work something out with their lender), the lender will eventually foreclose on the home. When this happens, the bank will try to sell the property as fast as they can, in order to get the non-performing loan off their books.
You see, banks are really good at lending money. But they are not set up to be property managers. So when a financial institution has to take ownership of a property, they want to sell it as quickly as possible. Until they do, the foreclosure property is a money-loser for them.
The last thing a lender wants to do is to try and price a home competitively for a profit, and then sit around and wait for an offer. They lose money in the process. To avoid this, the typically sell foreclosure properties through a real estate auction process — and the starting bid is almost always below market value. This is how you can get a good deal when you buy a foreclosed home at auction.
Purchasing a Foreclosed Home - By the Numbers
Up to this point, we've discussed the reasons a foreclosure property is a potentially good investment. Banks do not want to manage and maintain a house they have foreclosed on. They want to sell it off as quickly as they can. So you can often buy these homes at an auction for less than the true market value.
But how do you proceed with the process? What steps are involved, and what kind of tools do you need? Here is a step-by-step overview of the foreclosure buying process.
1. Start Tracking Foreclosures
You obviously need to know about a foreclosed home before you can try to buy it. This is where tracking services come into play. These web-based services are incredibly convenient, because they do a lot of the legwork for you — identifying foreclosure activity in your area, verifying the status of the property, and even sending you email updates.
If you start from scratch researching these services, you will soon be overwhelmed. There are hundreds of them, and they run the gamut from worthwhile to worthless. So let us save you some time and energy. There are really only two foreclosure listing websites worth subscribing to. Here's our recommendation...
You can sign up for a free trial with RealtyStore through the link provided below. Their website is incredibly easy to use, and their listings are always up to date. Get started below:
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2. Learn the Foreclosure Laws of Your State
The process through which a home is foreclosed upon varies from state to state. So do the laws. In some states, it's straightforward and consistent. In others, the process can be less predictable and more time consuming. So you'll need to spend some time researching the foreclosure laws for your state before you attempt to buy one of these properties.
Fortunately, the Internet makes this pretty easy for you. Do a Google search, and you'll quickly find a wealth of information on this subject. For example, I would do an Internet search for the phrase "Texas foreclosure laws" to find information relevant to my area.
3. Choose a Home to Invest In
All financial investments carry some type of risk. The same is true when buying a foreclosed property. For example, if you buy a home at an auction with the intention of selling it for a profit later on, there's always a risk that the house will not sell as quickly as you'd like. In this scenario, you could end up paying two mortgages for a while. Also, because most of these homes are sold through auction, there is a risk of over-bidding and therefore defeating the whole purpose.
In general, bank-owned properties carry the least amount of risk. When a bank forecloses on a home, you can be fairly sure there aren't any liens to contend with, and that the homeowners have vacated the premises.
When buying foreclosures it's also important to realize that the home will not come with any warranties. You are buying the property as is. So if you have an opportunity to inspect the property before it goes to auction, you should take that opportunity.
4. Bid on the Property at Auction
So you've found a foreclosed home you'd like to purchase, you have your financing all lined up, and you are ready to bid on the property. This usually takes place through a public auction held at the county courthouse. If you've never been to one of these auctions before, it's wise to attend one before actually bidding. This kind of "practice run" will help you understand how the auction process works. Remember, the reason people buy foreclosures is to get a good deal on the home. Starting a bidding war and driving up the price unnecessarily doesn't help anyone but the bank!
