Purchasing a foreclosed property can help you get the home of your dreams at a bargain price. However, foreclosure sale negotiations differ from other real estate transactions.
Purchasing a foreclosed property can help you get the home of your dreams at a bargain price. However, foreclosure buying negotiations differ from other real estate purchasing talks. Strict laws govern foreclosures, and they vary by state. Violating state laws can lead to fines or criminal charges, so it's important to have a real estate agent and attorney who have experience processing foreclosure paperwork in your state. Once you've found professionals you can trust to guide you through the legalities, try some of these tips to get the best possible price on a foreclosed home.
Before beginning your foreclosure buying negotiations, get pre-qualified for a mortgage. Showing the seller you can get a home loan gives you more power in the negotiating process. If you intend to occupy the home you're purchasing, you might want to consider applying for a mortgage from the Federal Housing Administration (FHA). FHA loans let you buy a home with as little as 3.5 percent down. If the house needs to be rehabilitated, some FHA loans let you borrow up to 10 percent of the purchase price of the home to make any necessary repairs. Typically, a lender selling a real-estate-owned (REO) property will require you submit a pre-approval letter with your home offer.
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If you're really looking for a bargain, don't begin your foreclosure buying negotiations until the house you like has been on the market for at least 90 days. Asset management companies usually set the price for bank-owned properties close to the fair market value of the property. These companies may also have strict guidelines that prohibit accepting a lowball offer within a certain time frame. In general, you shouldn't expect to get more than a 10 to 20 percent discount when purchasing a foreclosed home. If you feel the home is truly overpriced, your best option might be to wait a few months and see if it's still on the market. Homes that have been listed for over three months will often drop in price until they sell.
Even if you're sure you've found a reasonably priced home, don't get too attached to the property until the paperwork is signed. Some lenders will list properties below market value to create a bidding war between several parties. The price of a property with 12 to 15 offers on it can quickly become inflated beyond the home's true value. To avoid overpaying for a home, be realistic about what you can afford and what the real value of the home is. If you're unsure, ask your real estate agent for a detailed analysis of what the property is worth.
The rules, regulations and bidding process for buying homes the U.S. Department of Housing and Urban Development (HUD) owns is entirely different than buying from a lender, but the negotiations are clear-cut. If you are interested in buying these homes, check out our free comprehensive guide on the process and financing options.
Learning how to buy foreclosed homes can be stressful; and buying foreclosure negotiations can be tense. But if you start the process with patience and preparation, you can get a great deal. Keep in mind that many foreclosure listings will need some repairs. If you want to look at foreclosed properties in your area, get free listings from Reply!