Buying a Foreclosure: 5 Dos to Start Off on the Right Foot
At first glance, foreclosed properties appear to be the kind of bargains you simply can’t pass up. For some, it’s true: Buying a foreclosure can be a terrific investment opportunity.
But beware; there often are a number of challenges along the way. These five “dos” should get you on the right track as you begin your buying quest:
1. Do your homework.
Read everything you can get your hands on, attend seminars and seek the advice of foreclosure investors. Learning the lingo and understanding the basics of the process will better prepare you for the journey. Additionally, you need to research neighborhoods before you buy a home. What are the schools like? What about crime rates? What have other properties in your desired neighborhood sold for?
2. Do keep an open mind.
The current real estate market is certainly chock-full of competitively priced foreclosures. But the same can be said of traditional listings. Traditional sellers may be more flexible about taking care of repairs or negotiating price, and you likely won’t have to assume the previous owner’s overdue debts or liens. Plus, by narrowing your search to foreclosure homes only, you may not end up in your dream neighborhood or your favorite style of house. Being open to many options will ensure you end up with the best house for your money.
3. Do find an experienced agent and attorney.
The foreclosure market is complex. Whether you’re looking at a pre-foreclosure, short sale or bank-owned property, you’re going to need the guidance of a professional who has experience buying and selling these types of properties. That doesn’t mean someone who has read about the process. You want to work with someone who has gone through it and knows what can go wrong.
Besides, a real estate agent who specializes in foreclosures likely will have long-term relationships with area lenders, so they’ll hear about properties that haven’t yet been officially listed. Foreclosure laws and regulations are tricky, and they vary from state to state. A real estate agent can help you locate properties and make offers, but – unless he is also a practicing attorney – you cannot rely on him for legal advice. Be prepared to consult with a local real estate attorney who understands how these purchases work.
4. Do get prequalified.
It doesn’t make sense to fall in love with a home that’s twice what you can afford. If you’re serious about buying, go talk to your lender before you even begin your search so you know how much you can afford to borrow to buy a home and exactly which price point you should be targeting. Even better: Get preapproved. That way, you can move quickly when you decide you’re ready to buy.
5. Do think beyond today
It’s best to approach any real estate transaction with a long-term perspective.
If your plan is to flip the property and quickly resell it, you need to ask yourself: What happens if it doesn’t sell for six months or a year or longer? Do the math: How long can you afford to carry this property before all your profit goes down the drain?
If you plan to live in the house, do some math and determine what it will cost you to remodel and repair the property. Often, lenders are willing to loan money for the property but not the repairs. Can you afford to make this property your dream home? Can you handle the work yourself, or do you need to hire someone to do the repairs? Do you have a realistic idea about these costs? Do the math or you may suffer long-term financial repercussions.Mary Boone is a writer for Zillow, a home and real estate marketplace dedicated to helping homeowners, buyers, sellers, renters, real estate agents, mortgage professionals, landlords and property managers find and share vital information about homes, real estate and mortgages.