There is a prediction that the number of foreclosures will increase. Champaign County’s housing market is strong, but Coronavirus shutdowns have significantly impacted the economy.
Be prepared for the process if you’re looking for a foreclosure deal. Foreclosures have many of the same elements as other homes, but knowing what to expect can make the process more efficient.
Types of Foreclosures
Foreclosed homes fall into two general categories. There are bank-owned homes and real estate-owned properties (REO). In both scenarios, the lender owns the home. Foreclosure stages are what distinguish the two.
Homeowners of bank-owned properties have stopped making payments, and their lender is taking steps to evict them. Foreclosed homes are bank-owned properties that are auctioned. REO homes are still owned by the bank if they don’t sell at auction. REO properties have been up for auction but haven’t sold yet. Lenders often try to sell REOs through their REO agents.
Foreclosures tend to be cheaper and sometimes significantly less expensive than similar properties in the area. Many foreclosures are sold well below market value. You might also get other benefits of buying a foreclosed home, such as lower interest rates, reduced down payments, and you may avoid appraisal fees and some closing costs.
There are situations where you can find a deal on a distressed property, but it’s not bank-owned.
Pre-foreclosure is one example. Borrowers have been notified of default by the lender, but if they can sell their property, foreclosure proceedings may not proceed. In a short sale, the lender takes less for a property than what’s owed on the mortgage. Lenders can approve a short sale even if you are not in default.
There are also government-owned properties. When a property bought with a government-backed loan goes into default, the federal government owns it.
Buying a Foreclosed Home
If you want to buy a foreclosure, the following are the steps to expect:
Mortgage Preapproval
When you start looking for foreclosed properties, it’s a good idea to have a preapproval from a lender. A preapproval shows you’re serious about buying, and it will help you narrow down your search.
Find an Agent Experienced in Foreclosures
It’s important to have an agent on your side who’s experienced in dealing with foreclosures. If you don’t have a specific property in mind, they can help you find options in your area.
Make a Competitive Offer
Just because you’ve found a property in foreclosure doesn’t necessarily mean you don’t have to be competitive in your offer. You’re probably already going to be getting a substantial deal, but if you make an offer too low it can be rejected.
Get an Inspection
You buy foreclosed homes as-is. Whoever is on the seller side isn’t going to make any repairs. Whatever is needed becomes your responsibility if you buy the property. That means you need to know what you’re heading into when you make an offer. If you do an inspection and the problems are too much for you, you should pass on the property. The inspection is only to help you make a decision—whatever’s found isn’t going to be much in the way of a negotiation tool.
If you buy a home at auction, you don’t have the opportunity to do an inspection. Usually, if you buy a home at an auction, you can’t even go inside beforehand.
The Risk for Buyers
There are a lot of risks that come with buying a foreclosed home. There are often problems and hidden costs that you may not even discover in inspection. It’s also a slow process.
There’s a lot of paperwork when buying a foreclosure. Banks tend to be slow on their response times with these properties, and if a bank has a backlog of foreclosures, it can take months for them to respond to an offer.
None of this automatically means buying a foreclosure isn’t a good option for you. It just means that you need to prepare yourself for these hurdles.
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