The previous homeowner may have either abandoned the home, stopped making their monthly mortgage payments or voluntarily deeded the home over to the bank. The bank has possession of the property because they foreclosed on the mortgage or trust deed.
There are many reasons why homes go into foreclosure. Most foreclosed homes are not done so voluntarily.
Getting laid off from a job, a significant loss in the home’s value, rising medical bills, and other debt, a divorce or other legal issues, troublesome maintenance issues or getting transferred to a job in another state or country are some of the primary reasons why homes are foreclosed.
Buying a foreclosed home in Michigan can be tricky. Most foreclosed homes are sold at auction, so you probably won’t have the opportunity to have a walk-through so that you can examine the condition of both the interior and exterior.
You won’t really know how much or how little maintenance and repair work needs to be done until after you buy the home. However, with a little knowledge and forethought, you can quickly turn this opportunity into a rewarding investment.
Here are a few things to keep in mind if you’re considering buying a foreclosed home:
Remember that most foreclosed homes are sold “as is”
There are a few exceptions, but generally speaking, the majority of foreclosed homes are sold “as is.”
Except for visually inspecting the home’s exterior at auction, you really don’t know much about the condition of the house.
You can probably expect that there will be some maintenance that needs to be done. There may be plumbing issues, mold, faulty wiring or other problems.
Get your finances in order.
One of the most important things to do is to make sure that you can actually afford to buy the property.
You should have some idea of what the house or comparable properties are selling for, and determine how much you’ll need for a down payment, closing costs and moving expenses.
You can also do some calculations for monthly mortgage payments. Also, factor in any additional estimated costs that you may need for renovations or repairs.
You probably won’t know what, if any, work needs to be done until you can get a home inspection. However, it’s often a good idea to set aside funds just for these situations.
Foreclosed homes can sell quickly, so getting your finances in order is crucial for these kinds of investments.
Make sure that you are pre-approved for a loan.
Another essential step is getting a pre-approval letter from a lending institution. This letter is based on the lender’s assessment of your credit history and income.
Although some organizations may offer to finance, don’t count on it as a rule of thumb. Getting pre-approval will definitely make your home search
Look at comparable prices.
A good way to know how much a foreclosed home is worth is comparing it to other similar properties. These properties are also referred to as “comps.”
However, if the bank is selling the property for lower than comparable value, expect to see multiple offers on it in a matter of hours or days.
Bid appropriately, depending on demand.
If there are similar foreclosed homes in the areas that have sold quickly, be prepared to bid a higher price than you may have expected.
Homes in certain areas are frequently in demand and people are willing to spend a little more to get their ideal property.
If a home has been sitting on the market for weeks or months without any bids, you can afford to be conservative when bidding.
Get a home inspection.
After you’ve made an offer on a foreclosed home, you should arrange for an inspection of the home. Most home inspections cost around $500 or more and can take several hours to complete.
Getting a thorough home inspection can help you determine what additional work or repair needs to be done before you’re ready to move in or start renovating the property.
Find out if there are any liens on the property.
Another thing to ask is whether or not the previous homeowner had any other loans or liens on the property.
Sometimes people take out piggyback loans, which are additional loans on the same home. Piggyback loans can be beneficial in that they help people avoid paying private mortgage insurance.
However, they can cause things like closing costs and any other associated fees to double up.
Talk to your lender or title agent to determine if there are any such loans or liens and what you can do to resolve such issues.
Now that you’ve taken care of all the important tasks, you’re ready to move in! Renovations and repairs can be time-consuming but are necessary before you can move in.
They’re also helpful if you plan on turning around and selling the property at a profit. Foreclosed homes can be a gamble because you never really know why the previous owner abandoned the
The home could be in excellent condition, or it could need a lot of work.
Contact The Norber Real Estate Group
The best source of information about local communities and real estate topics is your real estate agent. Give Joshua Norber of the Norber Real Estate Group a call today at 248-785-3737 to learn more about the area, discuss selling your house, or tour available homes for sale.