investment property financing/buying a foreclosed home

7 Mistakes Buyers Make When Buying a Foreclosed Home

You’re ready to buy your dream home and want to get the most for your money. You’ve been hearing there might be some great deals on the market, especially if it’s a house in foreclosure. Maybe you could get a bigger house or more land if you buy one that’s foreclosed.

You’ve heard that you can save between 5% to 20% off market value. When you are buying a house, that’s a big chunk of savings. 

While the rate of foreclosures has generally slowed down, they are still out there and offer some advantages. Consider these 7 things if you are thinking about buying a foreclosed home. 

1. Consider Repairs and Costs

Often a house in foreclosure is there because its previous owner had a financial hardship. It might also be a house that sat empty for a period of time. It could be dirty, neglected or even been the victim of vandalism. 

Don’t get caught up in the excitement of how much money you are saving. It is necessary to consider how much you also need to spend. If the house needs repairs, there is a cost associated. The house may need extra work and money.  

With a foreclosure, it is important to consider the actual dollar amount for repairs and labor. Additionally, once you invest that money back into the house will you have spent more than the house is actually worth? 

Avoid buying what you perceive as a deal. Then spend so much on repairs, you have outspent the true value of the house. 

2. Failure to Get an Inspection

While you might be looking to save money with buying a foreclosure, skipping on an inspector is a terrible way to save it. 

Inspectors are trained professionals who can figure things out about a house that you can’t see on the surface. Depending on where you live, a certified inspector charges between $300-$500. This is money well spent. 

The inspector can identify potential issues before you make the big purchase. Is there mold, a problem with the plumbing, the furnace? These are all expensive issues you would want to know about before buying a foreclosed house. 

3. Going It Alone Instead of Using the Professionals

Buying a foreclosed home is just not the same as buying a non-foreclosed house. Trying to do it without the advice and guidance of real estate and legal professionals is a big mistake.

Buying this kind of home is fraught with potential problems and intricacies. You need a professional to guide you through the process. Find a real estate professional who understands the process of purchasing a foreclosure. Legal advice is also necessary to make sure the laws and regulations connected to foreclosure are being followed in your favor. 

Purchasing a home, not in foreclosure, can go pretty quickly. You can get to closing often in 6 to 12 weeks. Buying a foreclosed home often takes much longer. Using a professional as part of the process can help prevent unnecessary snags that might lengthen out the process. 

4. Clean Foreclosure

You want to be certain you are buying a house that is a clean foreclosure. What does that mean? Clean floors? Clean showers? Not exactly. 

A clean foreclosure is one that also does not have liens, tax debt, or utility bills that come with the house. If you purchase a foreclosure that is not clean, you could be incurring those liens and bills with the house. This could add unexpected costs to the purchase. 

5. Buying More Than You Can Afford

Many an investor has had things go wrong when they buy more house than they can afford. This is particularly tricky with foreclosures. 

If the foreclosure needs repairs, more money is needed. The value of the house may change increasing the tax burden connected the home. 

It is easy to think you want to buy a bigger house because you can get it cheaper. No more than 20% to 25% of your take-home salary should go to your mortgage costs. 

Be wary of thinking you can buy a more expensive house just because you can get it cheaper at the time of sale.

6. Not Doing Your Homework

 Buying a foreclosure comes with some homework. These houses come with some baggage. This could come in a variety of different forms:

  • liens, tax bills, utility bills
  • neglect
  • abuse from the previous owner

If the house is bank-owned, it will not come with a disclosure statement.  If the previous owner is not directly involved in the sale, you will not get information about the house from them. 

Research and use inspectors and real estate professionals to learn as much as you can about a foreclosed house. Prevent it from creating surprises for you later. 

7. Short Term Vs. Long Term

Buying a foreclosed home can be a great investment, but you need to be prepared. Many investors go into it thinking they will do some quick fixes and flip it to make some quick money. 

It doesn’t always work that way with foreclosures. Often they go down in value before they come back up. Thinking you can flip a house short term could backfire. 

You need to factor in the money you have invested in the property to get it resale worthy.  Then you need the market to support the higher price. 

Professionals believe you should plan to stay in a foreclosure purchase for up to ten years before it becomes worth the investment. Consider whether you want to buy a foreclosure hoping to make a quick buck. If so, this is likely not the route for you. 

Invest in a foreclosure knowing the long term is where you will make money on the property. 

Buying a Foreclosed Home Successfully

You can get a great deal on a foreclosed home, there is no doubt about it. You could buy a foreclosure and transform it into the home of your dreams. But you need to be smart about it. 

Buying a foreclosed home requires you to do your homework about the property. Use professionals to help you through the process. A healthy dose of realism is smart too. 

Learn the ins and outs of purchasing a foreclosure by checking out the resources on our blog. We want you to find the home of your dreams and it could be one that had a foreclosure in its history. 

short sales process/short sale approval

What Is Short Sale Approval? A Guide to How Long to Wait for a Short Sale

You’re in the market for a new home, whether for yourself or flipping purposes. While browsing local listings, you find one well below market value and your eyes blink twice, making sure your mind isn’t playing tricks on you. 

Before you swarm that apparent steal of a home, you need to consider whether or not it is a short sale property. If it is, then you need to be careful about your time frame. 

How long do you have to wait before closing on the house? If you have some time to spare, it just might be worth the wait!

Today, we’ll take a closer look at how long it takes to get a short sale approval on a home. 

What is a Short Sale? 

First up, let’s make sure we’re all on the same page about what a short sale home is. 

Sometimes, people have trouble making mortgage payments. Maybe life circumstances changed for them or maybe they didn’t read all the fine print and agreed to some unfavorable terms. 

Regardless of the reasons, it can become difficult and stressful wondering if someone if someone is going to show up at your doorstep. Avoiding countless voicemails and e-mails can become tiresome, too. In the end, these people often look for easy ways out, which might come in the form of a short sale. 

A short sale is when the lender (usually a bank) agrees to sell the home for less than what a person currently owes on it, forgiving the difference. Banks often favor short sales over foreclosure, because foreclosures can be long, difficult, and cost more money in the long run.

Plus, the homeowner is able to walk away debt-free, and you get a home for under market value. It’s a win-win-win for everyone.

These types of sales were especially common around 2010 during the mortgage crisis. To this day, they still happen fairly often. 

How Long Until You Get a Short Sale Approval? 

You may not want to hear this, but the answer is, “It depends.” 

As a motivated buyer, that can be a tough pill to swallow. Maybe this home is for yourself and you need to move in right away. Maybe you’re planning to renovate to boost profits by flipping the home, and you can’t wait any longer.

Either way, the ambiguous nature of the short sale approval process and its timeline can really throw a wrench in your plans. 

The Short Sale Process

First, you need to see the process from beginning to end to get a good idea of why certain aspects might take longer than others. In general, the steps are:

  • Seller contacts bank and applies for the short sale program
  • Seller is approved and is sent terms of the short sale
  • Seller finds a qualified real estate agent who specializes in short sales
  • Home is listed, usually for under market value (also after the home value is estimated) 
  • Buyer submits an offer to the bank
  • Bank either approves or counteroffers 
  • If approved, bank submits approval letter to the agent

As you can see there are a lot of moving parts, and any one of them could potentially hold up another. 

The Short Sale Timeline

Again, it’s difficult to give anyone exact numbers on this because it varies on a case-by-case basis. 

In general, though, you can expect to wait up to a couple of weeks to receive confirmation that your offer was submitted. After that, a bank will need to get an estimation of the house value. 

This can usually take up to a month, although it can take up to another month to review the estimation itself. From there, negotiations take place, which is often outsourced and can take another month to two months. 

Finally, it can still take up to two months or more for the bank to officially approve the short sale.

All in all, this process can easily last six months, but it depends on many factors, including:

  • The lender
  • The real estate agent
  • The negotiator
  • You

Everyone plays a role in the timeframe, and if someone is not on the ball, it can make the whole short sale approval process lag. For example, the lender who you are making offers to may be understaffed. 

It could be as simple as someone not having enough people to handle the number of sales they are working with. That being said, you as the buyer are an important part of the process and you can do your own part to move things along. 

What a Buyer Can Do

If time isn’t in your favor, and you need to move the short sale approval process along, you should do everything you can to help. For one, your offer is a big factor. 

A lot of times, what holds up a short sale is when people make lowball offers.

It’s easy to look at a short sale as an easy way to get a house at a steal. But there are limits, and banks may take longer to respond when the original offer is so low. 

Plus, sometimes, the counteroffer may be so much higher, that you’ll need to abandon ship anyway. 

It’s important that you carefully discuss this sale with your real estate agent beforehand. Find one who specializes in short sales, because they will know the current local market and how to approach it.

Patience Pays Off

It can be very tempting to jump all over a short sale home that is listed well below market value. But timeframe is an important aspect to consider, especially if you don’t have a lot of time to spare. 

While the short sale approval process can vary from one person to the next, it can easily take up to six months. Sometimes, the key to a quicker approval is to choose your real estate agent wisely, be wise about your offer, and know when to follow up. 

If you’re interested in getting more info on real estate investment, check out some of these top places to invest in 2019!