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Foreclosure Listings:
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Pros and Cons of Buying a Foreclosed Home |
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The American economy
has been in decline since the first quarter of 2008. Not many economists
are willing to call this deep recession a depression, but the way things
are going, a depression designation may be in the offing. Businesses are
cutting back on many levels as the latest economic news continues to scare
the entire business community, from Main Street to Wall Street. Companies
are going through round after round of layoffs, leaving millions out of
work and struggling to make ends meet. The intractable economic malaise
has the nation and the world wondering if this recession will end before
2011.
For consumers who are fortunate enough to have steady income and/or plenty of savings, this recession is an opportunity to go bargain hunting. This is especially true in the real estate sector. The global economic slowdown began with a housing crisis, and it's the languishing housing market that continues to act as a drag on government efforts to bring about a rapid economic recovery. In some parts of the country, homes are selling for less than $20,000 -- so low that one could literally purchase a home on a credit card. In many states, foreclosure rates are at levels not seen in decades. Money-savvy consumers across the country have been figuring out ways to capitalize on the depressed housing market, from buying cheap vacation spots to purchasing foreclosed homes, fixing them up and converting them into rental properties. Though the current foreclosure crisis presents plenty of opportunity to buy properties for pennies on the dollar, consumers still need to arm themselves with as much information about buying foreclosed homes as possible, because purchasing foreclosed properties is often far from easy. Here are some of the advantages and disadvantages of buying a foreclosed home.
Advantages:
Disadvantages:
No matter what kind of home you buy, you need to do as much research as you possibly can. What kind of neighborhood is it in? How are the schools, roads, and general environment? Is the lifestyle in the area a good fit for you? Those are just some of the questions you should be asking yourself. Homebuyers should also remember that with foreclosure auctions, you don't get to buy a home via a long term, amortized home loan, also known as a mortgage, in most cases. It's cash or a cashiers check. However, if the property in question is owned by a financial institution like a bank -- also known as a real estate owned (REO) property -- a homebuyer may be able to secure financing from the property-owning bank. If you find that the property you're interested in is owned by a bank, then patience will be your best ally. Negotiating with banks directly can be frustrating. Be prepared to wait for what might seem like an unreasonable amount of time for replies to your offers and other related correspondence. Also, remember that sometimes the repairs and other expenses involved in buying a foreclosed home can make it almost as expensive as buying a home at full-price, so be prepared to be disciplined about sticking to your budget. And don't make the mistake of paying more than you wanted to because you got caught up in the frenzy of a bidding war. Emotional bidding is a rookie mistake that could end up costing you thousands. |
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Purchasing a Foreclosure Property |
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Find A Local Agent: Most well known realtors have at least one agent dedicated to foreclosures and short sales. A dedicated pro will have Short Sale and Foreclosure Resource certification from the National Association of Realtors®.
Cruise On By: Drive through the neighborhoods you like and look for signs that say Bank Owned, REO or Foreclosure. REO, or real-estate owned, means that a bank or government agency is the property owner.
Budget: Whether you intend to live in the home yourself, or you plan on renting or flipping it, assess how much you will need to invest in the property. Issues may range from landscaping and leaky faucets to mold and lead paint. Be realistic when it comes to budgeting and avoid making assumptions like your brother-in-law will paint the bathroom in exchange for a case of beer. Leave a column in your budget entitled Misc. Unforeseen Expenses and throw a few thousand dollars in that column. Don't forget to budget for things like utilities, property taxes, homeowners insurance and waste disposal.
Inspection: The average cost of a home inspection is $300 to $600, depending on where the property is located. You'll find that this is money well spent because an experienced home inspector can spot problems that you could easily miss. A reputable inspector should have a long list of items to examine, including the roof, foundation, plumbing, insulation, ventilation, wiring, water heater, furnace, etc. Before hiring anyone, try to get at least three bids from local inspectors, and ask them what they plan on checking. Bid: With the home inspection and rehab budget done, your next move should be to find an agent and place a bid on the home you want. Find out if the property is being sold to the highest and best bidder. Keep in mind that, from the bank's perspective, the "highest" bid isn't always the "best." For instance, you put in a bid of $110,000, but you need to get a home loan, and that'll take about three weeks. If the bank gets another bid for $100,000 cash with a close date that's two weeks away, they may move forward with the lower offer. Needless to say, when purchasing a foreclosed home, cash is king.
Short Sales and Foreclosures: Two Different Animals: Remember that a short sale is not the same as a foreclosure. A short sale is when a mortgage holder (bank, credit union, etc.) lets a homeowner sell a home for less than the amount the homeowner owes on a mortgage. Anyone with experience with short sales and foreclosures will tell you that short sale purchases are invariably more complicated than purchasing a foreclosed property, especially if the short sale in question hasn't been approved by the bank. |
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