Our guide to finding a foreclosed house at a good price
If you’re house hunting, you may be thinking about purchasing a foreclosed home (also called a Real Estate Owned – REO – as the lender now owns it). There is the potential for great deals, but also more things to watch for compared to a traditional home purchase. To help you find the home that’s right for you, use this guide to understand some steps to consider when buying a foreclosed home.
- Check your finances. Check your finances: review your credit report and correct for any problems, and calculate how much you can afford for your down payment. Walk through your monthly budget to determine how a home loan fits in your financial plans.
- Get pre-qualified for a mortgage: Meet with your lender to help you determine a good estimate of the actual home price and monthly payment you can comfortably afford.
- Figure out what you want: That means the size of the home, its features, the neighborhood, and nearby amenities.
- Get an agent experienced with foreclosed homes: A real estate agent experienced in foreclosures can guide you through any paperwork that may come with buying a foreclosed home from a government agency, or a lender, and can help you determine if the price is a good value for the neighborhood.
Find a foreclosed home to buy
Foreclosed properties aren’t always listed in your real-estate flyer. Research as many listing services as possible.
- When a homeowner defaults on an FHA-insured mortgage, the Department of Housing and Urban Development (HUD) is responsible for its sale. The HUD website is an excellent starting place for your search.
- Fannie Mae and Freddie Mac list foreclosed homes across the country.
- Banks and mortgage lenders provide listings on the properties they own. Contact your bank to find properties in your area.
- Real estate listings, newspapers and websites may specialize in foreclosed properties or include them among their listings.
- Watch for home auctions in your area. However, do your research before attending one—don’t let bidding-induced adrenalin lead you to purchase a foreclosed home at an inflated price or for more than you can comfortably afford.
Home Buying Tip #2
Make sure your costs for your mortgage, property taxes and insurance are what you can comfortably afford and no more than 36% of your income before taxes and other deductions.
Get the property inspected.
This is particularly important when buying a foreclosed home. The previous owner may have let maintenance slide. Remember that a property may still be a good bargain even if it requires renovations, so decide what sort of home improvement projects you want take on.
Do a title search.
Check the property for liens, since the mortgage may not be the only property-related bill the owners couldn’t pay. Tax liens and mechanic liens (for unpaid construction work where the house was collateral) may have to be settled before you get full title. Check court records for filings, or hire a title company or lawyer to search for liens.
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