With the right loan, you can purchase a foreclosed home into your dream home
Some consumers carry a very vivid imagination and can picture what their future home will look like to the final touch and detail. In that case, they apply for a 203K loan to help renovate a fixer-upper into their picture-perfect dream house. One of the types of properties consumers might take a look at is a home that’s in foreclosure. What is a foreclosure? Foreclosure typically takes place when the current homeowner is not able to pay their monthly mortgage payments, and they are forced to forfeit their home to the bank.
First, let’s start that there are different types of foreclosures that are on the market.
- Pre-foreclosure – A pre-foreclosure, or short sale, occurs when the current homeowner still owns the property and are close to their going into foreclosure.
- Post-foreclosure – After the property is foreclosed and taken away from the homeowner, the bank or lender now owns the property and then becomes a real estate owned property (REO). If the borrower failed to make their payments towards their VA or USDA loan, then the property will be known as government-owned foreclosure. In this part of the foreclosure, the bank will hire a local real estate agent to put it on the market by placing the property on the market or put the house on auction for consumers to bid on it.
Foreclosed properties, especially short sale properties, will be on a tight deadline and the process to get clearance for closure on it can be lengthy and not appealing to the homeowner or banks. However, things like that shouldn’t set you back on obtaining and creating the perfect dream house to make your friends go “wow” and be the one that everyone envies in the neighborhood. If you want to use your 203K loan on a foreclosure, make sure you have your ducks in a row by doing the following:
- Check your credit report and get a pre-approval – We know, we are beating a dead horse by saying those two, but they are important enough that we need to mention these two, again. Know what your credit score is before you enter the game, fix it if it needs a tune-up, and getting pre-approval will be one of the most important steps you can make when you obtain a 203K loan.
- Use a Real Estate Agent who specializes in purchasing foreclosures – As we’ve mentioned before, every real estate agent in the world has their strong points and specialties. There are some who specialize in foreclosure properties, and some will be more familiar with the process the banks will want when you decide to buy it from a particular bank. Your agent can also discuss the possible challenges, laws, and regulations that can occur when it comes to foreclosures and help you make the right choices on what to purchase and guide you away from being dragged into a money pit.
- Get an Inspection – This part is a no-brainer, especially since foreclosed properties are purchase as-is. Foreclosed homes also are known to have little-to-no room for negotiation. For that reason, it is essential to get that inspection from a certified inspector. They will check for any signs of mold or varmints and check other major appliances as well too like the water heater, or the plumbing in the home, or the furnace, and the list could go on and on. It is also a great idea to check with the local building departments to find out if there can be any issues post-closing. Here, you should expect to hear the worse and get the numbers on how much it will take to bring it up to code.
- Making the offer – So you’ve gotten the inspection report and you are willing to fix it up. Congrats! First, which is obvious, is letting your real estate agent know you are interested in the property. If you are interested in purchasing a home with a short sale, your agent will present the offer to the individual who still owns the property and tries to make a deal. When you are interested in purchasing an REO foreclosure, your agent will present your offer to the listening agent that was hired by the bank. The buyer’s agent never has direct contact with the bank themselves. When you purchase the foreclosure, you will receive a different kind of deed known as the sheriff’s deed compare to your standard type of deed. It will not come with the same assurances or warranty an average deed normally carries. Also at the time of purchase, you will need to obtain a title insurance that provides an owner’s policy to ensure that no one will be coming back from the past and try to claim the home.
Keep in mind that even though the price tag is low on a foreclosed home, it might not be worth the trouble in the long run. Some foreclosed properties can be more of a hassle than others.
So if you are ready to use your 203K loan to buy a fixer-upper that might need more TLC than usual, take a look at foreclosures to see if one will be the right fit for you and your family needs. Like they say, never judge a book by its cover, but it doesn’t hurt to do some research on the inside of the property to make sure it’s not going to be more of a hassle than it’s worth.