Foreclosed homes offer certain benefits to potential buyers, giving them a chance to purchase a property at a price that is much below the market price of that property. However, sometimes foreclosure properties are located in undesirable neighborhood or in distant places and sometimes foreclosure properties may be in a very bad shape. If you are a potential buyer looking at foreclosed homes, you must take into consideration all these things. Before purchasing the property, you must carry out a cost-benefit analysis and the future cash flow from the property. It can be a time-consuming process to purchase foreclosed homes. You should have patience. Here are three simple tips for purchasing a foreclosed home.
1. Directly communicate with the lenders
It would be wise to directly communicate with the lender of a foreclosure property. If the properties are purchased from the banks, risks associated with those properties are comparatively less. In that case you will not have to bear the burden of evicting tenants or liens and moreover you will not be responsible for paying taxes on the foreclosed homes. Not only that, if you directly approach the lender to purchase the foreclosed home, sometimes you are offered various incentives such as no closing costs, low down payments, low mortgage rates etc.
2. Obtain the pre-approval for financing
If you can obtain a pre-approval letter from a mortgage lender, it indicates your eligibility to obtain a mortgage loan. This gives a fair idea regarding how much property you can afford to buy. You can use the pre-approval letter to bargain for the foreclosed property that you are willing to buy. However, in order to obtain a pre-approval letter from a lender, you need to provide documents supporting your employment, financial status and credit score. Moreover, you may be required to pay a fee to the mortgage lender to obtain the pre-approval letter.
3. Take into account the repair costs
Foreclosure listings are usually sold at a discount from that of the market price. But in some cases, foreclosed homes are sold in a very bad condition. These properties require renovation and repair costs. You need to take these costs into consideration before making the decision to purchase the foreclosed home. You can hire an experienced contractor and get an approximate estimate of the renovation costs. You need to factor in this renovation costs into your total costs. This will help you make the decision regarding the purchase of the foreclosed home.
One safe option for you would be to consider buying HUD homes for sale, which are owned by the federal government. However, you need to keep in mind that HUD foreclosed houses are usually located in undesirable areas and sometimes these properties need massive repair. The advantages of buying HUD home for sale the steep discounts often available. According to RealtyTrac, the average sales price of a HUD-owned home was $43,814 in the fourth quarter, representing an average discount of 59 percent below estimated market value.
Alex Brown is a prolific writer with specialization on various aspects of financial finance. His articles on debt, mortgage industry and personal finance are offer valuable guidelines to the readers.