Foreclosures can be a great opportunity to purchase a house at a discount. Working from home or entirely changing careers is a current reality for large numbers of Americans. Many people are now deciding to relocate or even flip houses. Foreclosed properties can help a buyer get started as a homeowner or investor.
Why a Foreclosure?
Foreclosure happens when a mortgage lender (usually a bank) seizes a property that has defaulted on loan payments. The lender will then resell the property in an attempt to recover losses on the bad loan. Each state has specific rules for handling foreclosures.
Foreclosed properties are often listed under the REO acronym. REO stands for "real estate owned property." This means the lender owns the property for sale due to a foreclosure or deed in lieu of foreclosure.
Foreclosure provides a legal recourse for banks and other lenders when dealing with borrowers who default on payments. For homebuyers, foreclosures can represent the opportunity to simplify the purchasing process.
Foreclosure is often confused with a short sale. They are not the same thing. A short sale is a direct sale from the current homeowner for less than the current mortgage amount.
What Are the Benefits of Foreclosure?
The benefit of foreclosure for buyers is primarily the chance to buy a house at a reduced cost. It is also a faster process to close the transaction. These are compelling reasons why many buyers are interested in purchasing foreclosed properties.
There are also potential downsides to buying foreclosed properties. A large downside is that foreclosed properties usually do not get inspected, unlike a typical property sale. This means there could be unforeseen expenses that might be immediate or may be required further down the road. It also means there could be issues for VA borrowers.
It is important to consider that a loan might not be an option in purchasing a foreclosed property. This creates the possible drawback that a property might require a cash-only sale. It is not a viable option for many people to purchase a house outright in cash.
How to Find Home Foreclosures for Free
Many buyers are looking for a deal when purchasing a foreclosure. This means that competition can get intense, especially in high-growth markets. It is a good idea to explore multiple lists of properties and locations.
There are many free resources that can provide lists of foreclosures in a buyer's preferred area. If a buyer is open to the location, some states have higher foreclosure rates. There are multiple federal resources where a potential buyer can view foreclosures for free:
- HomePath is a federal resource owned and run by Fannie Mae. It provides a listing of properties that are for sale by Fannie Mae.
- HomeSteps is another federal resource with listings run by Freddie Mac. This site provides a list of properties for sale by Freddie Mac.
- HUDHomes provides a listing of properties that are available for sale through the HUD.
- Although it is not technically a foreclosure list, the IRS lists properties for sale, often at a considerable discount, on the Treasury website.
In addition to federally owned or financed properties, banks are another excellent resource in seeking out a foreclosed property. Not all banks make this information public, but many do:
- Bank of America has a dedicated and free website listing its available foreclosed houses.
- Wells Fargo also provides its listing of REO properties available online free of charge.
Many real-estate-focused online resources can also provide listings, such as Realtor.com foreclosures. A real estate professional will also have access to all MLS listings. Additionally, there are many services that offer foreclosure listings for a fee, such as Foreclosure.com or RealtyTrac.
It is important to be prepared for the homebuying process, especially with the variety of issues that can arise. From obtaining preapproval letters to valuating a property investment, there are key elements that can yield a successful purchase.
Inexperienced or less confident buyers should consider working with a licensed real estate professional. A professional can help buyers avoid many pitfalls throughout the buying process.
