As unfortunate as it is, there are times when borrowers can’t repay their home loan. Be it through circumstance or general unwillingness, some don’t keep up with their repayments. Most lenders will wait for three months before taking action. When they do, they usually evict the homeowners, take possession of the property, and try to sell it.
This is usually a heartbreaking situation for the previous owner. However, it potentially offers you the opportunity to buy a property at less than its market value.
Most lenders try to sell foreclosed properties at auction. As a result, there are a few things you need to keep in mind if you want to buy such a property. Here are our top five tips for buying foreclosed properties.
Tip #1 – Get Pre-Approval on a Home Loan
Lenders want to get rid of foreclosed properties as quickly as possible. As long as they have such properties on the books, they’re costing the lender money. As a result, you won’t find many lenders who will offer much flexibility to buyers. They’ll want a fast settlement, along with proof that you can make your home loan repayments.
This means you need to have pre-approval on a home loan before trying to buy a foreclosed property. Beyond that, you need to get your finances in order. Make sure you have enough money to cover the deposit and any fees that come with the purchase.
Tip #2 – Be Prepared for a Fast Settlement
As we mentioned, lenders want to sell their foreclosed properties as quickly as they can. This usually results in a short settlement period.
You need to prepare for this. You won’t often benefit from a cooling off period, so you have to feel certain that the property is right for you. Get a good solicitor, so you can get the paperwork completed quickly. Furthermore, do everything you can to get your home loan application approved in a short time frame. If you don’t, you may have to pay late settlement fees.
Tip #3 – Have Money for Repairs
You won’t always get the chance to get a good look at a foreclosed property before you buy it. Furthermore, you may find that the last owners didn’t leave the property in very good condition. That’s understandable. Cleaning the counters and touching up the paint work don’t rank high on the list of priorities when you have to leave your home in a hurry. You may also find that the previous owner reacted badly to the news of the property’s repossession. There are stories of previous owners purposefully causing damage before leaving the house.
As a result, you may need to have some extra money in the bank to bring the property back up to its top condition. If you’re lucky, this may just involve a bit of cleaning. However, there may be more extensive repairs to consider as well.
Tip #4 – Try Not to Buy Sight Unseen
We mentioned that you won’t always get the chance to inspect the property before you buy it. This is known as buying sight unseen. Be very wary of buying any property that you can’t examine beforehand.
Yes, you may snag a bargain. However, you have to remember that a real estate agent’s pictures will show the property in its best possible condition. This may end up misleading you into underestimating the amount of work that you need to do or overestimating the property’s value. Try to arrange at least one building inspection before you buy.
Tip #5 – Treat it Like a Regular Property Purchase
You’re still buying a house. Yes, the situation is different. However, that doesn’t mean you should neglect the usual process you would follow when buying a property.
Inspect the area and find as much data as you can about local property prices. This will ensure you don’t pay over the odds for a property in a distressed area. Investors need to consider the potential for capital growth, as well as look at local vacancy rates to find out if there’s any demand for the property.
What to Do Next
Buying foreclosed properties could be your pathway to getting a great property at a low price. However, it’s not the same as buying a regular property. You need to keep all the above tips in mind to get a good deal.
There are a few more steps you can take before moving forward:
- Read more about the different types of home loan
- Find out how much you can borrow using our calculator
- Discuss your options with one of our home loan brokers.
This information is general in nature and you should always seek professional advice when making financial decisions.