Buying foreclosure property can yield substantial savings, as long as buyers understand how to capitalize on available options. Most people are familiar with buying houses through foreclosure auction, but this is not always the best approach.
Foreclosure property sold at public auctions often has two or more mortgage loans attached. Real estate auction prices are established based on the balance owed on the first mortgage. Buyers are responsible for conducting due diligence to determine if additional mortgages, tax liens, or creditor judgments are attached. If so, buyers must engage in negotiations to pay off outstanding balances in order to take possession of the property.
Another drawback of buying foreclosure property through auctions is buyers are usually required to provide funds within 24 hours of submitting the winning bid. This may not be a problem for investors who buy homes with cash, but can be challenging for first time home buyers or those purchasing foreclosure property as a second home.
Most people who buy houses at auction obtain preapproved financing through their mortgage lender. Others take out a home equity loan using their primary residence as collateral to secure the loan. This strategy can place buyers’ primary residence at risk for foreclosure.
Instead of attending foreclosure auctions, many people are now looking at buying bank owned real estate. These properties encompass foreclosure realty that did not sell through auction. When banks retain ownership they sometimes make repairs to return the home to livable condition or make it more marketable. However, properties are sold in as-is condition and any work performed is not covered under home warranty.
One of the biggest advantages of buying bank owned vs. foreclosure properties is real estate owned by banks are sold with a clean title. Not only does this save buyers money, it also allows them to take quick possession of the property.
Bank owned real estate is usually priced higher than homes sold through auction, but all the time-consuming and costly details are taken care of. Many states include a redemption period for properties sold through auctions. If foreclosed property owners are capable of paying off the outstanding loan balance they have the option to buy the house back from the winning bidder. The possibility for owners to reclaim their property is eliminated when buying houses through banks.
The downside of buying bank owned foreclosures is mortgage lenders rarely reduce the purchase price. Buyers often compete with multiple buyers and should be prepared to submit their highest offer. The exception to obtaining reduced prices through banks is if substantial repairs are noted in the home inspection that was not recorded when the real estate was initially repossessed.
One option to buying foreclosure property though banks is Fannie Mae’s Home Path Mortgage program. In addition to offering discounted real estate, Home Path provides special financing options for buyers with bad credit, along with a low down payment requirement of 3-percent.
Many real estate investors are turning to Fannie Mae foreclosures because these properties often qualify for grants under HUDs Neighborhood Stabilization Program. Individual buyers and investors can apply for NSP grants when purchasing real estate in areas that have high foreclosure rates.
Combining NSP grants with Home Path’s low-interest and low down payment loans allows buyers to purchase real estate at substantial savings. Details about Fannie Mae’s Home Path Mortgage program are available at HomePath.com.
Buying foreclosure property is not without risk. Anyone planning to buy foreclosed homes as a primary residence or investment property should become familiar with the pros and cons of buying distressed real estate.
The primary goal is to buy houses well below market value, make necessary repairs, and either obtain instant home equity or quickly sell the property for profit. Buyers must conduct due diligence to ensure the home is actually a good deal and not a money pit.
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