Is Purchasing a Foreclosure in Your Future?
Is it possible that the cloud of foreclosure activity could have a silver lining? The combination of favorable mortgage interest and the increased availability of foreclosed properties – according to the website RealtyTrac.com, about three million in 2009 – lead many to believe that now is the time to pick up one of these distressed properties at a fire sale price.
Could the purchase of a foreclosed property be your best path to home ownership? What are some potential pitfalls? Let's get you started by taking a look at three things you'll need to do before you decide whether purchasing a foreclosure makes sense for you.
- Do Your Homework – Locating, examining, and purchasing a foreclosed property requires up-front research, and lots of it. The first step is locating a foreclosed property, which is usually indicated by the public filing of a lis pendens (Latin for "lawsuit pending") by a lender.1 Foreclosures may be properties on which the purchaser has defaulted, as well as new builder-owned homes.
- Evaluate the Property – Once you've located a property that you believe has potential, all the rules for evaluating any property apply – and more. In addition to location and the condition of the property, other factors such as the amount of outstanding liens (if any) on the property and the presence of other foreclosed properties in the neighborhood must be considered.
- Note: Depending on who is selling the property and how it is to be sold (through a REALTOR®, auction bank, etc.), a thorough inspection of the property prior to sale may be difficult or impossible to arrange.
Plan Financing in Advance – You'll need to have your financing plan in place before you make an offer. Financing options for a foreclosed property may vary widely; from below-market rates from the owner of a bank-owned home, to the need to pay in full on the day of sale for a property sold at a public auction.
You should also consider whether all the time and effort that you'll need to spend to become a successful buyer of a foreclosed home will be worth it. According to Vera Gibbons, CBS Early Show financial expert and contributor, notes that price cost savings on such properties can range from 40% to as little as 5% for choice properties in sought-after locations.
An excellent source for advice on foreclosures or meeting any of your other real estate needs is an ERA professional. Contact your local ERA team member today.
1 Foreclosure laws and regulations vary by state. Consult your legal advisor before considering the purchase of any foreclosed property.