So you're ready to jump into the world of investment property—or perhaps you're buying your future "forever home"—and a bank foreclosure seems like an attractive place to get started. Before you begin dreaming up renovations on the property you have your eye on, here are 10 crucial components to know when buying a foreclosure.
1. Have the Necessary Documentation
Buying property of any kind begins with the right documentation. Make sure you have these documents ready to go after you determine which foreclosure you have your sights on:
- Pre-approval letter stating that the income, assets, and employment have been verified.
- Proof Of Funds (statement showing account balance).
- Cleared Deposit check of at least $1,000 or sometimes up to 3% of the purchase price (fully refundable prior to end of review period).
- Fully Signed and completed Contract for Purchase and Sale with no financing contingency (cash offer).
2. You'll Be Using the Bank's Title Company
Typically, the bank will require you to use their title company to do the closing. They have already researched the chain of title, and are familiar with the bank regulations. Additionally, they will pay for the title insurance, which saves you approximately 0.5% of the purchase price!
3. Get Pre-Approved and Close on Time
You may be charged late fees for any extensions—this is why it is imperative that you are pre-approved.
4. Research the Value of the Property
The bank will consult with their real estate agent and set the price of the foreclosure property at full market value. The list price has nothing to do with the price the bank will accept—a good realtor will research prior mortgages on the property so that you can estimate the minimum offer the bank might be willing to accept.
5. Make Your Offer Stand Out!
Having a larger deposit, waiving the financing contingency, and showing proof of funds will get the bank to want to work with you, even if your offer is less than your competitors.
6. Choose an Experienced Real Estate Agent
Having the right agent can make a world of difference when trying to snag your ideal foreclosure property. Make sure that the agent you choose to work with is:
- experienced in working with banks
- represents you as a single agent
- knows how to structure deals to make sure you are protected
- has purchased foreclosures themselves.
7. Properties Sell As-Is
The Bank WILL NOT make any repairs: they sell the property as-is. For this reason, you have a review period to make sure the property is suitable for your needs. Some are in perfect condition, some are in terrible condition. Either way, you should do a thorough home inspection after your offer is accepted.
8. Make the Offer First
It is recommended that you make your offer first in order to see if you even have a chance of getting a good deal on the property. If the bank responds and states that they will not sell for less than market value, then there in no point seeing it. You will save countless hours of driving around and looking at properties that you have no chance of getting for bargain rates.
By making the offer first, you'll know if the property is even worth seeing and you'll be more likely to stay within budget.
9. Love It, or Your Money Back
You typically have 7 days to review the property, perform any inspections necessary and decide if you like what you paid for enough to keep it. Your deposit is fully refundable within the review period.
10. The Bank Will Take a Portion
Typically, the bank looks for a price that is within 5% of the asking price. If the bank is asking $350,000, and you offer $280,000, it is almost certain that the bank will reject your offer or give you a counter close to list price. The rule of thumb is that if the bank would accept $280,000, then they would ask close to $280,000. If they don’t get their price, they will lower it every few weeks.
Bring in the Real Estate Experts!
Ready to take on the challenge of finding your ideal foreclosure property? Let us put our experienced real estate agents to work for you!