6 Questions Foreclosure
Buyers Should Ask
These are questions that Buyers in any market should be asking
before they make an offer on a property in foreclosure.
Is now a good time to
buy a foreclosure?
This is a very common question from
prospective Buyers. Because local market conditions vary, the answer is
different from market to market. But there are questions that Buyers in any
market should be asking before they make an offer on a property in foreclosure.
What’s the first step
buyers need to take?
Buyers should be preapproved for a
loan before they shop for a foreclosure. If they’re thinking of buying a
foreclosure as an investment or second home, they need to understand that
financing the home will be more difficult and more expensive than financing a
primary residence. Lenders typically charge higher interest rates and require a
larger down payment for investment or second homes.
How can you tell a bad
foreclosure from a good one?
Certainly there are great deals in
many markets for both investors and buyers looking for a primary residence. But
making a sound deal can be tricky. Buyers need to be wary of unpaid liens,
including mortgage debt, taxes, construction loans, home equity lines of
credit, and possibly a second or third mortgage. Any or all of these financial
obligations could become the Buyer’s responsibility when they purchase a
property in foreclosure. Unless the property goes through a foreclosure auction
and becomes a bank-owned REO, the outstanding foreclosure liens and fees could
be simply transferred to the new owner. Buyers should be careful not to fall
into the same financial trap as the previous owner.
Eileen Kedersha, Broker Associate One Sotheby’s International
Realty – Kedersha Group 954-561-4100 EKedersha@OneSothebysRealty.com
If I’m a
qualifying borrower, can I appeal to banks for better loan terms?
Lenders usually have an inventory
of properties in default; particularly in hard-hit real estate markets—so they
may be motivated to cut a deal. If the Buyer has a good credit score, banks could
offer them a below-market-rate loan on a bank-owned home. Unlike paying down
with points, this doesn’t cost anything in fees, and it gives them the ability
to spend more for the home.
What are the costs of
buying a foreclosure?
It takes money to make money. The
best opportunities are for buyers with cash. If the Buyer is planning to rent
out the property or even resell it for a quick profit, he should make sure he considers
the carrying costs, including sales commissions, marketing costs, vacancies,
taxes, insurance, and maintenance costs. Once the Buyer has calculated all the
expenses, he should add on another 10 to 15 percent. If the Buyer doesn’t build
in a "surprise fund," he might be the next foreclosure statistic.
How does choice of
neighborhood affect foreclosure investments?
Buyers looking for a good
investment should generally avoid neighborhoods overrun with foreclosures,
particularly newer subdivisions in overbuilt areas. Investors will be tempted
to buy foreclosures in these areas because they offer the steepest
discounts—but they also carry the most risk of further depreciation. Look in
well established neighborhoods with good schools and transportation. In a
market where prices are still falling, the Buyer should factor falling prices
into any offer they submit on a foreclosed property.
Eileen Kedersha Associate
Broker 954-462-3600
William Kedersha Estate Realtor 954-817-2900
William Kedersha Estate Realtor 954-817-2900
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