Buying a Foreclosed Home

In the current scenario, buying a foreclosed home seems like a wonderful investment. A number of economists feel that today, homes are as affordable as they were in 2004. Of course, there is a chance that people may not witness noteworthy appreciation in the price of the property for a long time. Given the state of affairs, a foreclosed home may be good purchase for people who need a place to stay rather than people looking at it from an investment perspective. However, aspiring homeowners need to be very cautious while buying a foreclosed home. More so if the foreclosed property is going to be their first home purchase.

Steps to Buying a Foreclosed Home

Finding Free Foreclosure Listings
The internet is the best place to find foreclosure listings. Typically, bank websites and the HUD (Housing and Urban Development) websites have detailed foreclosure listings. People should look for foreclosed homes sold by the Department of Veterans Affairs, Internal Revenue Service, Small Business Administration, US Army Corps of Engineers, Customs, U.S. Marshals Service, Department of Agriculture and Rural Development, Fannie Mae, Freddie Mac, Federal Insurance Deposit Corporation, and General Service Administration. The website of the National Association of Realtors also has a plethora of information on home foreclosures for sale. Newspapers also carry information regarding proposed auctions, the names of the home owners and the lenders.

How to Buy a Foreclosed Home?
Foreclosed homes are disposed off at auctions held on the steps of the county courthouse. People who have considerable experience in buying foreclosures can buy the foreclosed home at this stage. Risk averse individuals should not buy a home that is being auctioned on account of the following reasons:

The bidders are not allowed to inspect the property before making a bid, although it's possible that the home may be in need of serious repairs. The successful bidder is expected to make the payment right away and again may have not have time to inspect the property. The title deed may be unclear and there may be additional liens against property that may have to be borne by the buyer. The buyer also has the unsavory task of evicting distraught tenants from the property and the latter may vandalize the house out of spite before bidding goodbye to a home that was once theirs. House auctions also tend to inflate the price of the property and may end up costing the bidder much more than it is actually worth. Thus, buying at an auction is not advisable for a novice. Even a seasoned player may find it difficult to navigate the aforementioned risks of buying a foreclosed home at an auction.

If the property is not sold off at an auction, the bank winds up with the deed to the property. The home that is now a part of the bank's inventory, is referred to as real estate owned (REO). The bank may price the REO at a reasonable figure just to get rid of it. In addition to low cost, there are numerous benefits of buying a foreclosed home from a bank:

The buyer can inspect the house before purchasing it. At times, banks may pay for repairs that are found during preliminary home inspection. Buying a bank foreclosed home is a good deal for the first time home-buyer since the buyer does not have to concern himself/herself with evicting tenants. The bank also tends to negotiate with other creditors and gets rid of taxes and other liens against property.

A seasoned investor may consider purchasing a tax-lien foreclosure that is the result of the homeowner defaulting on property or income tax. The home is again sold at an auction and it may be disposed off for as low as 60% below its market value since the government is only interested in recovering the taxes.

Hopefully, the aforementioned tips on buying a foreclosed home will be of use to a buyer who is keen on buying his/her first home. Price of comparable properties is an important factor that has to be taken into account regardless of whether one buys a REO, a tax-lien foreclosure, or bids at an auction. The absorption rate, or the length of time required to sell the current inventory given the present rate of sales, also needs to be calculated since a low absorption rate is a bargaining chip for the buyer.