What Is A Foreclosed Property? - What You Need to Know
If you’re interested in buying a home but can’t qualify for a mortgage, renting might be the answer. If that’s the case, you may want to look into a foreclosed property. However, what does foreclosure mean exactly? A foreclosure is when a homeowner fails to make loan payments on time, and the lender initiates repossession of the house as a result. These houses are also known as real estate owned properties or REOs. When homes go through foreclosure, they usually cannot be sold in their current condition because buyers won’t pay enough money for them. This leads banks and lenders to sell these homes at an affordable price to people who wouldn't qualify for mortgages. If you’re interested in taking advantage of this opportunity, keep reading to learn more about what is a foreclosed property.
What Is A Foreclosure Property?
During the foreclosure process, the lender may allow the homeowner a certain number of days to make the missed payment(s). If the lender receives the missed payment(s) during this time, the lender may cancel the foreclosure process. If the lender does not receive the missed payment(s) during this time, the lender may go ahead with the foreclosure process. Once the lender has repossessed the home, it may list the property for sale. This process can take several months or even years to complete. However, during this time, the homeowner is given several chances to make up the payments and keep the home. If they aren’t able to do so, the bank will repossess the home and make it available for purchase.
Why Are There So Many Foreclosed Homes?
There are several reasons for why there are so many foreclosed homes in the U.S. today. The first one is that the housing bubble that took place in the early 2000s burst and led to a housing crisis. As the value of many homes dropped below the amount owed on their mortgages, more and more homeowners had to go through the foreclosure process when they couldn’t make their monthly payments. Although the rate of new foreclosures has dropped significantly since the height of the crisis, the overall rate hasn’t changed much as more and more old foreclosures are added each year. As a result, more homeowners found themselves unable to make payments on their loans. A decade later, the foreclosure crisis is still a reality today. In fact, there are still around 2 million homeowners who are at risk of foreclosure. Now is a great time to buy a foreclosed home, since there are more now than there were 10 years ago.
What To Expect When Buying A Foreclosure Property
When purchasing a foreclosure home, you might run into a few challenges. First, you might not know the full condition of the property. You will likely want to hire an inspector before you make an offer on the property in case there are any issues that could lead to the house not closing. Secondly, you might not be able to close when you want to. Most foreclosures take about 90 days in order to close, but there are some caveats. For example, if the bank is involved and there are issues with the property like a code violation, it could take a lot longer than 90 days. There’s also a possibility that you could lose the bidding or be outbid at the last moment. You might also feel pressure to make a quick decision. Buying a foreclosure property also means that there is less time for you to correct a lien or back taxes that may be owed on the property.
Benefits of Buying a Foreclosed Property
One pro of buying a foreclosed property is that you can often negotiate a better deal than what was originally listed. If you’re willing to be patient and keep an eye out for listings, you may be able to snag a great deal on a foreclosed property. These properties often change hands quickly because the banks that own them want to unload them as quickly as possible. Because of this urgency, banks often have to drop the price below the original listing value just to get them off the books. If you’re willing to negotiate, you may be able to snag an even better deal than what was listed.
Buying a foreclosed home is a great way for first time home buyers to get into the real estate market. These homes are often sold at a discount and either need repairs or are in need of updating to be moved into. Repairs often cost less than 10% of the value of the home, which is a great deal for first time homebuyers.
Foreclosed homes are also a great investment option since you can resell them later for a higher price turning these into a great way to generate passive income. Even if the real estate market is hot and homes are selling quickly, there are likely to be a few houses that have been on the market for a long time and have been reduced in price. When you purchase these homes, you can repair them and put them back on the market for a higher price.
If you are looking for a house to purchase but aren’t able to get a loan yet due to a poor credit rating, you can also find a fixer-upper that has been reduced in price and make repairs to it with the intent of reselling it later at a higher price.