Buying a foreclosed property is a little different from a typical home sale; the bank requires a pre-approval letter from your lender before they will accept your offer. In addition, there is little or no opportunity to negotiate price— meaning the buyer must pay for all necessary repairs out of pocket. This does not, however, mean the property will cost you more money in the long run. In fact, many people prefer to buy a foreclosed home because they can get a low price and are able to move in quickly (typically the property is vacant). Here are four tips to help you purchase a foreclosed home.
- Get a real estate broker: Typically, a bank has one or two agents that handle the real estate owned (REO) properties. You will want to hire your own real estate agent; it's important to find an agent experienced in representing buyers. Using an agent will not only make you a more favorable buyer, but will also provide you with more information about the property!
- Get pre-approved by a lender: All foreclosed properties on the market require a lender’s pre-approval letter before the buying process can begin. This letter will detail how much you are allowed to borrow based on the lender’s evaluation of your income and credit score. It’s important to get a pre-approval letter as soon as you know you’re interested in buying because REOs go quickly! Even if you later decide against purchasing a foreclosed property, getting pre-approved by a lender is beneficial for any home buying opportunity. It will make your home selection process much quicker and simpler! Check with your local lender to get pre-approved today.
- Pricing depends on the market: There is no definitive rule on how low the bank is willing to price a property. To determine the market value for the home you are interested in, look at the sales prices for similar homes in the area, as well as the current market conditions, and write a competitive offer based on that information. Many homebuyers want to write offers that are substantially below market value but that is not a good strategy; it’s best to write a competitive offer if you want it to be accepted by the bank.
- Don’t expect a repair discount from the bank: REO properties are generally sold as is, meaning the bank will not discount the price of the property to compensate for necessary repairs. This should not prevent you from buying a foreclosed property, however, as there are many renovation loan options you should discuss with your lender!
If you’re interested in purchasing a foreclosed home, talk to one of our loan officers today and learn how you can get pre-approved!
