If you are wondering how to buy foreclosures, you need to understand that there is a process that you must get through. In order to facilitate the purchase of a foreclosure, there are several steps you should take. In fact, you should take these steps in order so that you can make sure that you get the best deal on a good home.
The first step in looking for foreclosed homes is finding an agent who deals in these kinds of properties and understands buying foreclosures. Many buyers mistakenly start by trying to find foreclosures on their own. You want an agent that has experience handling foreclosure homes because it is a very specific process that has a lot of room for error. To find foreclosure homes for sale, your agent will look in their local MLS system for foreclosure listings first. In addition, agents often know about other opportunities such as short sales and pre-foreclosures. An experienced agent knows how to find foreclosures for sale easily.
Make sure that the agent you choose has had experience in dealing with all different kinds of foreclosures. Some homes will have several different liens on them, and that can cause all kinds of issues during the closing process. That's why it's imperative to work with someone who knows what they're doing. Buying a foreclosure does not have to be a frustrating experience if you know how to navigate the foreclosure process.
The next thing you need to know is that you should look at all of the options. Don't simply look for a certain kind of foreclosure. Instead, start with pre-foreclosures and work your way into other kinds of homes. For instance, you might be wondering how to buy government foreclosures or how to buy HUD homes. There are all kinds of government foreclosure properties available including HUD homes (which result from foreclosing on an FHA home), VA foreclosures, Fannie Mae foreclosures and Freddie Mac foreclosures. Some buyers wonder how to buy VA foreclosures because they think that only veterans can do that. This is untrue as VA foreclosures are available to any buyer.
You can also buy a bank foreclosure by going to an auction. These auctions are typically held on the courthouse steps or as a sheriff's sale. Buying foreclosures at an auction is a little bit different in that you usually have to pay most if not all of the amount of the property immediately upon winning. You can get cheap deals at an auction, but you must understand the process for payment.
The great thing about buying foreclosure homes is that there are many different loan programs available. For instance, you can purchase Fannie Mae foreclosures using their special HomePath financing program which has a low down payment and flexible terms. In addition, it doesn't have any mortgage insurance and works for primary residences as well as investment properties and second homes.
There are also programs specifically geared towards first-time home buyers and other types of government foreclosure homes. One popular program is managed by the USDA and allows buyers to purchase homes in rural areas with no down payment.
It's important to get a prequalification letter from a lender before you start looking to buy foreclosures. This is because the seller wants to know that you're a legitimate buyer. When speaking with the lender, make sure to ask how much the upfront down payment will be. These days, most loans will require 20% down payment, although there are some special programs that may allow you to get into a home for as little as 3% down. A lot of this depends upon your job situation and credit score. Most homes under $50,000 will not have any financing opportunities. Typically, those are purchased using cash or creative financing such as hard money lenders.
Most lenders will recommend that your debt to income ratio should not be any higher than 35% to pay for your mortgage payment. However, you need to look at your overall budget to make sure that that is not too high for your situation. The lender will run some numbers including your income, current debt and credit history to figure out what you can qualify for.
It is vitally important to get a home inspected before you purchase it. Make sure that any contract you enter into allows a certain period of time to hire a licensed inspector to look over the home for you. When you purchase a home "as is", you should still have a right to get an inspection even if the seller is not agreeing to fix anything for you.
The inspector is mainly looking for structural damage and other major mechanical problems, such as heating and air issues or electrical dangers. Even though it may cost you $250-$350 in most cases, the price of an inspector can save you thousands of dollars in the end.
The inspector will also be able to make sure the home is up to code and passes all permits that are needed, especially if it has been vacant for a while.
During the closing process, a title search will be done to make certain that there are no liens against the property that you don't already know about. Everything must be clear from the title in order for the mortgage to go through and the home to be insured. You definitely don't want any hidden surprises that come up while you're signing the contract at closing. However, you also don't want surprises after the closing if something slips through the title search. In order to prevent this, you can purchase owner's title insurance that will protect you for the entire time you own the house. It is one small fee at closing, and will protect you in the event that your ownership of the property is legally challenged.
Sometimes unexpected issues can pop up with the title such as HOA liens, insurance fees, past due taxes, etc. In addition, someone can come back years later and say that there was forgery somewhere in the chain of title. This may have happened 10 or 20 years ago. Having owners title insurance will protect you by making sure that your interests are protected in court.
If you're wondering how to buy bank foreclosures, this quick primer will get you started. Many home buyers these days wonder how to buy foreclosure properties, so make sure that you take these steps to protect yourself and find the perfect house for your needs.
Foreclosure homes are bought at discounted prices, anywhere from 30% to 50% below market value. This makes a great financial opportunity for homeowners and for investors.
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There are three stages to foreclosure properties:
* Properties that had loans insured by a federal agency like HUD, Fannie Mae, or guaranteed by the Department of Veterans Affairs, conclude in a fourth stage. When these properties return to the lenders after failing to sell at auction, these agencies compensate the lenders and take ownership of the property. The agencies then make preparations to sell the property to the public.