The real estate industry is reshaping a new market as a result of the real estate bubble burst and the sub-prime mortgage problem. We are now witness to the emergence of a new phenomenon called a foreclosures home.
Investors and homeowners who can pass the stringent requirements of financial institutions may consider investing on a foreclosures home. There are a lot of properties that are on the FHA foreclosure listings we can consider as “best buys.” Another thing to watch out for is the impending occurrence of a second wave of foreclosures; this time in the prime property sector.
Best Practices When Buying Foreclosures Home
Buyers can follow either of three routes in buying foreclosures home. One option would be to transact directly from the homeowners before the real property is foreclosed by the mortgage lender. This approach is referred to as pre-foreclosures.
Another approach is through auction. Prospective home buyers are required to bid the highest to purchase a foreclosures home.
The third one involves direct transaction with the real estate company.
Buying Through Pre-Foreclosure
Pre-foreclosures can be an attractive approach under the following circumstances. Prospective home buyers must have the available equity to close out the deal with the present owner of the real estate property. You should also have access to complete information appertaining to the property; particularly the title, the mortgage structure and liens.
The owner of the home gives up his rights to the property by signing a deed in your favor. You are in effect assuming the mortgage along with the rights to the real estate property. You also have to pay all back payments or mortgage payments that are over due.
The auction approach may vary depending on the state where auctions of a foreclosures home are held. It is essential to note at this point that this approach carries the heaviest risk. This method, however, may also yield the greatest benefits to the winning bidder, as he stands to gain as much as 40% out of the transaction.
The downside of this approach is that buyers will not be able to do a thorough inspection of the property prior to the auction. Winning bidders also have to pay in cash. In some instances, you may also encounter problems with former owners of the property refusing to vacate the house. In addition, you may also compete with real estate investors who are out to cash in on the purchase through resale as well.
Buying directly from the real estate company entails lesser risks when it comes to the actual condition of what you are buying. You are afforded ample time to inspect the property. You can also demand for a clean title and also add a stipulation in the contract that it is subject to getting a mortgage. Brokers usually handle the sale of foreclosures home in behalf of the banks. This approach is the safest amongst the three approaches, however, the downside would refer to lesser gains from the purchase of the foreclosures home.
Selecting the right method in buying foreclosures home would depend on the goals and circumstances of the buyer.