Below is a brief overview of buying a foreclosure or bank owned (REO) property.
Buying a foreclosure requires patience as unexpected things can arise during the inspection or when your attorney completes a title search. But, it is a great way to gain equity and purchase a property under market value.
Typically a foreclosure is sold in as-is condition with limited knowledge on the history of the home or disclosures. It is normally the buyer's responsibility to complete their due diligence during the inspection period to ensure they understand the condition and repairs needed on the home. In some instances the property may be unsafe to activate utilities (water/electricity/gas) during inspections so it is imperative that you have a contractor look at the property as well. A licensed contractor can give you a cost estimate on the repairs needed to get utilities activated again and any repairs or remodeling that you want to complete.
Lending is usually the next hurdle when it comes to buying a foreclosed home. Since many bank owned homes aren’t in livable condition and require repairs. A buyer interested in a foreclosed home would need to see if they qualify for a rehab loan. Common rehab loans included: FHA 203(K), FHA 203(B) or a Fannie Mae HomeStyle renovation loan. Some lenders also offer a conventional rehab loan with an escrow holdback for repairs. Depending on the type of loan, the purchaser may be unable to complete repairs on the property. So it is always recommended purchasers have a general contractor available to provide quotes for the project. All lenders will require a quote for the repairs needed to get approved for the loan.
Other items to consider when buying a foreclosure included (but not limited to):
Make sure all back taxes and liens will be paid by the bank prior to closing
Keep an eye out for environmental hazards and hire a profession if suspected
There is normally little room for negotiations before going under contract and after inspections.
Most banks won’t do repairs after going under contract. But some have been more open to it as of late.
Time is of the essence, but in some instances the closing time frame could be delayed longer than your initial plan or contracted closing date. So being flexible is recommended.
Contact your local foreclosure specialist below to see if buying a foreclosed home is right for you!