This article was originally posted on HouseHunt.com.
Buying a foreclosed home can be a tricky process, so we’ve put together a list of Dos and Don’ts to help you navigate this meandering road. The foreclosure buying process is different than the traditional home-buying process, from choosing a loan to the length of escrow. Therefore, a healthy dose of research and patience will go a long way on your foreclosure-buying journey. Here’s how to buy foreclosures.
The 10 Dos and Don’ts:
Do get preapproved for a home loan before starting the buying process. Like we discussed in the Newbie Home Buyers Series, getting preapproved for a loan makes you a more attractive buyer, giving you more negotiating power when it comes time to make an offer.
Don’t pick just any lender. The lender you choose should have experience working with foreclosures. If specific foreclosure guidelines aren’t followed, the process could be delayed, resulting in fines or your accepted offer falling out of escrow.
Do hire a real estate agent that specializes in purchasing foreclosed homes. There are a lot more idiosyncrasies to the foreclosure-buying process than that of a traditional home-for-sale. For example, an agent experienced in foreclosure dealings knows that offers from those applying for a VA or FHA loan may not be accepted—many banks prefer to sell their properties as is, while the aforementioned lenders require repair work to be completed before funding the loan.
Don’t rely solely on your agent for legal advice. Foreclosure laws can vary significantly from state to state, so get in touch with a local real estate attorney for some sound advice.
Do narrow down your search. After choosing your ideal neighborhood, determine the bare-bone basics your home must have. This will help guide your search and keep you from becoming overwhelmed with listings that don’t meet your needs.
Don’t think short-term. Foreclosures are investments, and should be approached from a long-term perspective. Foreclosed homes aren’t ideal for flipping, as the home may have depreciated after time spent vacant or because the previous owner was unable to pay for necessary repairs.
Do expect to spend money on repairs. The home may be in disrepair for the reasons mentioned above, but you have to prepare yourself to purchase the property as-is. Furthermore, keep the amount you plan to invest in repairs (about 10 percent of the home price) in mind when making your offer. Remember, the less contingencies with your offer, the better. Most banks won’t correct problems prior to selling a foreclosure, so the offer with the least amount of contingencies will likely win out.
Don’t do repairs yourself. Hire a professional home inspector to find out what repairs need to be done, then receive estimates on repair costs and use certified, licensed professionals to have them carried out.
Do have a maximum spending price in mind. Banks want the best possible price, and there may be several buyers vying for the same property. Therefore, expect a counter offer from the bank and then make your best possible offer—keeping your price ceiling in mind.
Don’t get antsy. The escrow process on foreclosed homes will most likely take longer than if you were buying a new or owner-listed home. Banks may use non-local escrow companies, leading to more obstacles and longer timelines. In short, be patient!
Buying a foreclosed home may be a bit more of a headache than the traditional home-buying process, but if you approach your foreclosure purchase with a long-term investment mindset, you’ll be able to take any setbacks in stride. Do your due diligence, don’t take any shortcuts, and remember: patience is a virtue, especially when buying a foreclosed home.
