investing in foreclosures

If you’re considering buying foreclosures or working directly with a bank’s REO department and this is your first time at the dance, you’ll discover that buying a foreclosed property isn’t exactly the easiest thing to do.

Sure, you see articles online or watch some show on cable T.V. about buying foreclosures, fixing them up and selling them for handsome profits, but there’s a bit more to it than just showing up at the closing table. And unless you have a few thousand extra dollars in your piggy bank, you’ll need to get a mortgage. Is getting a mortgage for a foreclosure different from any other type of property?

From a financing perspective, not really. Mortgage guidelines do require a minimum down payment of at least 20 percent and offer slightly better terms with 25 percent down.  Most lenders require a minimum credit score of 640 or better and the interest rates on investment properties will be anywhere from one-quarter to three-quarters of a percent higher compared to a rate for an owner-occupied home.  In addition to your down payment and closing costs, you can expect to have cash reserves in the bank equal to at least six months’ worth of house payments. Beyond that, a mortgage for a  foreclosure is no different than any other property.

Foreclosures do require a bit more due diligence and if you treat the transaction like any other purchase it could cost you. Foreclosures that have been vacant for some time can be in a state of disrepair. While a home might look like a bargain on the internet, without a personal, physical inspection accompanied by a licensed contractor, your “bargain” just might end up being a money pit.

 

Review a copy of the title report as well to research any outstanding liens that will have to be settled such as second mortgages, property tax liens or liens filed due to delinquent income taxes.

Most banks today employ the services of a real estate broker to list the home. An agent will prepare the home for market making any needed repairs, clearing any title issues and giving the home an overall fresh look.

Buying and financing a foreclosure will be familiar to you in many ways, but there are some critical steps along the way that can trip you up. Do your homework and employ the services of professionals who can help. That can make the all the difference in the world.