Knowing how to buy a foreclosed home in Southern California is a great way to buy properties below market value. The buying process is time consuming, complicated and significant amount of hard work. If you’re considering to buy a foreclosure property, you’re probably in for some great deals on the purchase price. You’ll likely face a few challenges when buying a foreclosure home. Buying a home is a big financial decision.  Buying a foreclosed home is different from buying a traditional standard sale. In most cases:

• Only one real estate agent is involved with the transaction.
• Many homes in foreclosure have been poorly maintained.
• The seller wants a preapproval letter from a lender before accepting an offer.
• There is little, if any, room to negotiation the deal.
• May have violation of codes or other standards.
• The home comes “As Is” condition, and it’s up to the buyer to pay for repairs.
• There may be problems with financing. Many lenders don’t want to fund the purchase of foreclosed homes.
• No sellers disclosures and competition.
• You might not see or inspect the house before buying.

On the upside, most bank-owned homes are vacant, which can speed up the process of moving in. Buying a foreclosure is definitely a complicated and lengthy process. You’re getting fantastic pricing, but sometimes it takes going through a lot of houses and writing a lot of offers to get the home you want.

How to Buy a Foreclosed Home – Steps to Buying a Foreclosed Home:

There are 5 steps to buying foreclosed homes

• Find an experienced real estate agent specializing in foreclosures sale.
• Get pre-approved for a mortgage loan from a direct lender.
• Search For Foreclosed Home Near you.
• Make a strong offer.
• Close The Deal

Here are the basic steps of how to buy a foreclosed house.

Get a Real Estate Agent on Your Side

Foreclosure transactions are potentially lucrative, but volatile and complicated. The goal of combing through foreclosure listings is not to find a house; it’s to find an agent. Banks usually hire one or a few real estate brokers to handle their REO properties in a market. In a lot of cases, the buyer works directly with the bank’s broker instead of using a buyer’s agent.

“A lot of these Realtors have a long-term relationship with these banks, and they know of listings that haven’t even come on the list yet. “Call them about the listings that you’re interested in, but also ask them about listings that may be coming up because sometimes it may take a day or two or even a week before a listing actually comes onto the database.”

Such a request might not always pan out. In places where thousands of foreclosed properties are for sale, you might not get much one-on-one attention from overloaded agents. To prove that you’re serious about buying, says Jensen, “right before or after you meet with the agent, meet with the lender.”

Get Pre Approved For a Home Loan

The next step in buying a foreclosed home is getting a pre-approval letter from a direct lender. A mortgage pre approval is vital to show that you’re ready, willing and serious to buy a home. Being financially prepared is the key here. Unless you plan to buy all cash, you’ll need a preapproval letter to make an offer. If you need to compete with cash buyers, you want to be able to show that you’ll close the deal. Foreclosure deals are really good deals and they sell fast and the buyer will have no time to try to work out the financing afterward. A preapproval lets the seller know that you’ll be able to get the funds to buy the property.

Search For Foreclosed Home Near You

You’ll see properties that are marked as pre-foreclosure, foreclosure auction and Bank Owner (REO) on the MLS and on real estate listing websites that pull from the MLS. Government agencies and government-sponsored enterprises sell foreclosed homes. This includes Fannie Mae, Freddie Mac and the Department of Housing and Urban Development. Websites that specialize in home auctions, like Hubzu and Auction.com, feature foreclosed properties. You may find foreclosed homes in the local newspaper. Some cities and counties host auctions, which may include empty building lots or former municipal buildings. There are several online foreclosure listing sites, like Foreclosure.com, Foreclosures.com and RealtyTrac.com.

Make a Strong Offer

While buying a foreclosed home, you have to take a quick decision and prompt action. After you like the location, neighborhood and the property, make an offer. Work with your real estate agent to get an idea of comparable home prices so you can make a strong offer that fits your needs and budget.

Remain Prepared for Difficulties

Pricing Depends on Sales Pace

Buying a foreclosure can be a bumpy road. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Correct pricing is extremely important when buying foreclosure property. There’s no rule of thumb on what the bank’s bottom line is on price. Just as with any other real-estate purchase, you have to look at the recent sales prices of comparable properties, or “comps”. You really have to look at the comps in today’s current market conditions and write a competitive offer based on that.

Don’t Expect a Repair Discount

When a home goes into foreclosure, it often is neglected by the outgoing homeowners because they are no longer motivated to keep it clean and in repair. Foreclosed houses are normally sold “As Is” condition. You shouldn’t expect to get a discount to compensate for repairs. Look at the absorption rate for your product class. If homes in your product class are selling swiftly, “the best advice on a bank-owned property is to come in at your highest and best offer, unless the property has been sitting on the market forever with no activity. Just bid the higher price in the first place.

Keep Your Handyman Ready

In most foreclosure property repairs are almost inevitable. I recommend that get your handyman team ready who can assess and repair damage. You should assume that the air conditioning needs to be fixed, and possibly the heating system, too.

Work With The Lender

If you want to buy a foreclosed home, you should be able to purchase one using a government-backed or conventional mortgage, but the property will need to pass a home inspection and an appraisal.

What You Need to Do to Close The Deal?

The most important thing to understand about closing on a foreclosure is that it’s a non-standard transaction and the lender will have their own processes and requirements. This is primarily a protective measure to shield the bank from any recourse by the buyer.

Home Inspection:

It’s recommended that you have a professional inspection performed by a licensed home inspector prior to making an offer. The bank won’t allow for any contingencies in the offer, so be sure about your decision. Don’t skimp on the home inspection either; it could end up costing you way more in the end if something gets missed. Moreover the seller may not give some disclosures.

Working with a specialized foreclosure agent

This is where working with a specialized foreclosure agent can come in handy. Often times the agent can get their hands on a recent inspection report, saving you time and money before you decide to move forward.

Run a comprehensive title search and report

It’s also prudent to run a comprehensive title search and report. Because of the uniqueness of the transaction, you’re more likely to discover additional liens on the property during closing.

Remain Prepared to Buy As-Is Condition

Most lenders will not allow a transaction to close unless all of their requirements are met. The property will be transferred in as-is condition, so the buyer is taking on all of the burdens.

No seller disclosure requirements

There will be no seller disclosure requirements either because, after all, nobody from the bank has ever lived there.

Where to Find a Foreclosed Home?

Auction Homes

The different types of distressed properties can be found on various sources. There are several consumer-focused sites that can be found by conducting simple Google searches for “auction homes” or foreclosure homes”.

Real Estate Agents

The absolute best route to take is to work with an experienced real estate agent that specializes in foreclosure home sales. This is not just because they will have better access to available listings, but also because foreclosure transactions are very different from conventional real estate sales. You will want someone that can guide you through all of entire process.

Mortgage Lenders

Specialized real estate agents will have a network of contacts from traditional lending institutions, mortgage banks, other real estate agents, and residents living in areas where you hope to buy. Very often real estate agents work directly with banks to handle REO properties.

Newspaper and Online Public Records

Foreclosure sale ads from the VA and the FHA are posted in newspapers on a regular schedule. Legal notices of default also run in newspapers. You can also check online public records and the county courthouse. This is where all real estate transactions for a property in that county are recorded.

Mistakes to Avoid When Buying a Foreclosed Home

• Know your stuff
• Don’t go it alone
• Don’t limit yourself
• Don’t skip the inspection
• Look beyond today

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Wrap Up:

Foreclosure is a long and costly process in which the lender tries to collect money that a delinquent homeowner owes them. Ultimately, buying a foreclosed home is a complex process that can result in a true bargain when done right or a terrible decision when approached carelessly. Even professional investors can end up upside down on these transactions. If you’re ready to take the plunge, do your research, speak with a professional real estate agent, set a budget, prepare for the worst, and take it one step at a time.

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