What is a foreclosure?
Long story short, a foreclosure is a bank owned home. Someone went too long without payment and the bank took back the home. Now it’s for sale by the bank at either an auction or on MLS at a lower price to get it sold quickly. With the housing market booming again I have seen more and more foreclosures AT market price. It’s a little crazy.
Now what about buying one?
I get it. You’ve been house hunting for a long time now, trying to find the best bang for your buck. You’re searching for something that you can grow your family in – or make some extra money on down the road. You come across a house that needs a little TLC. It’s listed much lower than the neighboring houses. And then you see the reason why: It’s a Foreclosure.
We have purchased 7 homes before the age of 30. Heck, I’m 28 as I write this. Our first purchase was when I was 22 years old. We have purchased everything from a new build, to 40 year old homes, to a short sale and even a foreclosure.
Foreclosures don’t have to be scary.
Foreclosures don’t have to be scary. If you’ve never purchased one before, which I assume is why you’re here, it can be a bit intimidating, but it doesn’t have to be.
All of the houses have had the same goal. Live in it, make it look nice, and make sure it’s safe, clean, and functional.
If you’re considering the idea of purchasing a foreclosure despite friends and family trying to scare you away, just know I am rooting for you! You can do this! Where do we go from here, though?
- GO SEE THE HOUSE. Check out the structure and layout and determine if it’s a good fit for your family. More importantly, check out the neighborhood. If this is where you want to live, AWESOME. That is a step in the right direction.
Which brings me to a rule we have lived by that has benefited us greatly:
Buy the worst house on the nicest block.
This will ensure you have instant equity in the home if you move forward with purchasing it. You can always make a junky house look incredible which results in providing you with more equity in the home. With a new build, you have the luxury of everything being brand new but you also have the drawbacks of appreciation being much slower than an older home compared to one you fix up.
2. MAKE SURE YOUR FINANCING IS IN-LINE. What I mean by this is, first and foremost, make sure you have financing in place, pre-approval in hand, before making an offer on the home. As with any home, this makes your offer stronger than someone who does not have a pre-approval letter. We have always had a great experience with Rocket Mortgage.
3. YAY! YOUR OFFER WAS ACCEPTED AND YOU’RE UNDER CONTRACT!
4. GET AN INSPECTION. An inspection is vital when purchasing a foreclosure or bank owned home. This will shed light on any hidden issues the home may have. From there, you can weigh your options and determine if you are physically and financially up to fixing these problems. Foreclosed homes are typically sold “As-Is” meaning you can’t ask the bank to fix anything because, put simply, they won’t.
Foreclosures are sold AS-IS.
5. APPRAISAL. After the inspection, your lender will require an appraisal. The lender will order this. An appraisal is completed by an unbiased, licensed individual (the appraiser) who visits and inspects the house on a much broader scale to determine the value of the home. If certain issues came up in the inspection, the appraiser may be provided with that information.
It is up to the lender to determine if they are willing to lend on the home.
Sometimes, your lender may have stipulations that need to be met before they will lend on a home. Not just a foreclosure, but any home.
This happened to us on a house pretty recently. We loved the house, it had a lot of potential and just needed a little TLC. The inspection was completed and brought up some issues that weren’t a concern to us because we were going to be renting it out and not living in it. It didn’t seem like anything dire. And then we heard back from the appraiser: We needed to have a french drain relocated, the roof replaced, and the foundation fixed in order for them to lend to us. Needless to say, that one didn’t work out for us and we backed out of the deal. Speaking of backing out…
When to back out of a house
Back out of a deal when it doesn’t feel right. I am a strong believer in trusting my intuition (thank you Holy Spirit!) and going with my gut. If things are not adding up and you are getting stressed about all of the what-if’s, back out. There are instances where you can get your earnest money back if you back out of a deal. You will need to discuss those exceptions with your Realtor. I would much rather lose $1500 backing out of a house I didn’t feel right about than going broke trying to fix it.
6. CLOSING! If the inspection goes alright, and the appraisal comes back good, you should be all set to close!
A Foreclosure can be like any other home purchase.
No, really. Read that again. Foreclosures are like any other house. They may need a little bit more cosmetic work to get things the way you want them, but all in all, if you do your due diligence to ensure you are making a sound decision, it is a great way to purchase property under market value.
This was our first foreclosure purchase. I’ll do it again and again if the right opportunity arises. If you want to see the original before pictures of this house, you can see them on my Meredith Lane page here!
