Guide to Buying a Home Owned by the Bank
When times are bad, you’ll see them in all sorts of neighborhoods: those sad-looking houses with overgrown lawns and brand-new signs shouting “Foreclosure.” What was obviously a tragic situation for the family that lived there can be a real opportunity for the bargain hunter.
There are three phases to any foreclosure, and it’s possible to buy a home during any of them. The first occurs before the foreclosure action has taken place. The second is the auction itself. Buying at either of these times can be risky.
If no one bids on the house at auction, the bank will repossess and list the property for sale through a Realtor. This is probably the safest stage at which to buy, but you’ll have to do a little research. There are several essential steps.
Inspect the Property
Seasoned investors refer to bank-owned properties as distressed, and there’s a good reason for that. Many a foreclosed owner has taken out his aggression on the property itself. When his actions have resulted in major damage to the home, repairs could eat up most, if not all, of the money you might save on its purchase. Any bank that owns such properties will normally sell them in as-is condition, so the responsibility for needed repairs will fall on the shoulders of the buyer. A qualified home inspector can give you a fair idea of the expenses you might expect to incur in making them.
Perform a Title Search
Since the people that owned the foreclosed home were likely suffering financially, chances are good that they were in debt. A title search will uncover any liens and unpaid taxes for which the property’s new owner is legally responsible. Normally, the bank will clear the title before making the sale, but if it does not, the purchaser will have to do it.
Banks normally have little interest in holding on to a foreclosed property. This fact gives the potential purchaser the opportunity to engage in some creative negotiating. It is often possible to obtain a lower down payment, a reduction in closing costs or below-market financing.
Make Your Offer
Remember, the bank will want to unload the foreclosed property as quickly as possible. Regardless of the asking price, never hesitate to make a lower offer. Just be prepared to back up your case with photographs of the property’s flaws along with written estimates of proposed repair costs.
Obtain Your Financing
If your credit is good, many banks will loan you the entire price of the foreclosure and, in some cases, even more. Otherwise, if you intend to rent out the property and can provide proof to that effect, the bank may accept a small down payment that could be as low as 10 percent. If you already have a bit of equity in another home, the lender may extend to you a full line of credit that you can later convert to a mortgage.
Don’t Wait Too Long
If, after you’ve done all your homework, the property you’re eyeing still looks good, it’s sure to have other interested suitors. When this is the case, don’t wait too long to make your move, or you could soon be lamenting the foreclosure of the century: the one that got away.