When home prices continue to push buyers away from the already scarce inventory, alternatives have to be sought. Among which are pre-foreclosed properties. What are these properties and is it wise in invest in them?
Looking for an affordable home can be a challenge for homebuyers especially in major cities in the country. During the past year, home prices have significantly increased as a result of overwhelming demand on a market with scarce housing availability. In turn, those who can’t afford the prices in urban centers are forced to look at other options outside the cities.
One of the common alternatives is buying a property on pre-foreclosure. When a property is said to be in pre- foreclosure, the current owner still has a chance to come up with the money to pay the bank. The owner can either get personal financing, or sell the home to pay off the loan. If they successfully find a buyer and sell, they can dodge the damage from having a foreclosure in one’s credit record.
People used to shy away from pre-foreclosure homes because of the associated risk. But due to the current market situation, people are starting to reconsider them as alternative options. It’s a transaction that benefits both the buyer and the seller. While the seller gets to save himself or herself from a potential credit damage, the seller also gets a discount on the property’s full market value.Get today’s mortgage rates!
Why are homes foreclosed?
There are various reasons why people stop paying their mortgages. It could be a divorce, a sudden loss of a job or stable source of income, emergency medical concerns, or even death. Nobody just forgets their mortgage. Disruptive events such as these can easily result to the homeowners letting go of their homes.
After a homeowner fails to meet his or her monthly mortgage payments, the bank would issue a notice of default. The period between this issuance and the start of foreclosure proceedings vary from lender to lender. One thing is clear: the homeowner must talk to their lenders in order to reach an agreement about how the homeowner can get back on track. If no agreement is met, foreclosure will ensue, typically at around 120 days after the receipt of an NoD.
Hunting for pre-foreclosures
It’s hard to find pre-foreclosure properties because they are not necessarily for sale. You can do a manual hunt and drive through neighborhoods of interest or you can visit some real estate sites that provide pre-foreclosure listings.
Note that the NoD is registered at the county recorder’s office so that’s a good place to start as well.
Traditionally, more investors are interested in pre-foreclosed homes. Most individual homebuyers find distressed properties risky due to the massive repairs that need to be done to get the house back in shape.
Dealing with the homeowners can also be an entirely different experience. You will never know what to expect. Since the properties aren’t necessarily on sale, some might even feel antagonized or offended of your offer to buy.
Placing offers on a pre-foreclosed property
If a home is valued at $200,000 in the market and the homeowner still has $150,000 left to pay to the bank, you have to factor in how much money it would cost to do the necessary repairs. Perhaps, you could make an offer that is less than the market value but would still leave them with some money for themselves.
This way, they still get something from the sale while you reap the benefits of a good deal.Click to See the Latest Mortgage Rates»