Are you looking to buy a home and also looking for a great deal on it?

If so, a foreclosed home is a great option.

But, while you can purchase a foreclosed home at a much lower price, there are also a lot of challenges that come with buying a foreclosed property.

Therefore, it’s very important to do your research before you buy a foreclosed home and to know what you’re getting into.

What should you prepare for?

Read on to learn what to know about buying a foreclosure.

1. Get Pre-Qualified

Guess what? You’re not the only one on the hunt for a great deal on a foreclosed home. With foreclosures on the rise, more and more people are interested in purchasing this type of property.

Therefore, before you begin your hunt, it’s very important that you get a preapproval letter from a lender ( a letter that details how much money you can borrow based on the assessment of the lender).

This is because a seller would much rather work with someone who has already been pre-approved than waiting around for weeks for someone who still needs to get a pre-approval letter.

2. Understand the Different Ways of Buying

There are two different ways to purchase a foreclosed home: You can purchase the home at an auction, or you can buy it from a bank once they take control of it.

Which buying option is better than the other? Let’s take a look at each option.

Auction

Buying a foreclosed home through an auction can be incredibly difficult. This is because when you purchase from an auction, you are buying the home sight-unseen. In other words, you don’t get a chance to look at the interior before you purchase it.

You’ll have absolutely no idea what kind of repair jobs you could be facing, and there’s a good chance that the repair list could be quite extensive. Not only that, but you also won’t be able to inspect whether or not there are any outstanding taxes owed on the property.

Secondly, you’ll be attempting to outbid professional real estate investors, something that’s very difficult to do even if you are a seasoned bidder.

And, even if you do win the bid, you will be expected to pay for the home in cold, hard cash. It’s unlikely that you have $200,000 plus in cash lying around.

Lastly, if the current owner still lives in the house when the auction takes place, you’ll have two major concerns on your hand: evicting the current owner and dealing with potential vandalism.

Having your home foreclosed is an awful experience, and therefore there’s a chance that the buyer may lash out by refusing to leave or by vandalizing the property before leaving.

Bank

Buying a foreclosed home that is in the possession of a bank is a much better option.

For starters, the bank is required to pay off any senior liens, such as back taxes. And, you’ll get the chance to inspect the home for damage and figure out how much money you need to set aside for repairs.

Plus, when banks take possession of the home, they hire real estate agents to sell it. So basically, you’ll get to buy the property in the same manner as you would any other type of home. When you put down an offer in this manner, the real estate agent will take that offer and present it to the bank. The bank will either accept that offer or give a counteroffer.

The whole process is much less confusing than if you were to purchase through an auction.

3. Get a Home Inspection

So, you’ve made the right decision by choosing to purchase your home through a bank.

Even though this is the much more trustworthy option, you still need to get a home inspection before purchasing.

Many foreclosed homes are in need of serious repairs. But, these serious repairs aren’t always noticeable to the untrained eye. A professional home inspector is necessary because they can catch the repairs that you wouldn’t.

Once you know the cost of repairs, you can better decide whether or not the foreclosure property is actually a bargain or not.

4. Get Ready to Spend Extra on Maintenance

When you hire a home inspector for a foreclosed home, it’s highly unlikely that they’ll come back with a report saying that the home needs very few repairs.

Almost always, buying a foreclosed home means you’ll be investing in a significant amount of repairs. Of course, once you find out about the repair costs, you can always attempt to ask for a lower price. But, since the bank is already selling the home at a loss, it is very unlikely that they’ll budge on their price.

Therefore, make sure you not only have money set aside for the price of the home, but also for the repairs.

5. Look at Comparable Properties

When buying a foreclosed property, it’s also very important that you look at the recent sales prices for other comparable properties in the area. This is sometimes referred to as “comps” in real estate lingo.

By looking at comparable properties, you can better figure out how to write a competitive offer.

The prices for foreclosed homes are all across the board- some are way overprices, while others are an absolute still. It is only by looking at comparable properties that you can figure out whether you need to place an offer that’s higher, lower or the same.

You can click here to get an idea on the pricing for foreclosed properties.

What to Know About Buying a Foreclosure: What’s Next?

Now that you’re aware of what to know about buying a foreclosure, it’s time to start house hunting.

Of course, your house hunting journey will always be a lot easier if you have the right real estate agent by your side.

If you still haven’t found the right agent, be sure to get in contact with us today.