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What You Need to Know About Buying a Foreclosure

You’ve heard all these great things around the water cooler about buying a foreclosure and getting a great deal in Northern Virginia.  Anyone who has just purchased one will tell you all the great things about it.  Those that have heard it through other people just chime in to reiterate the fact that it’s a good decision.  Well it’s easy to tell everyone all the good things that happen, but you’ll rarely find anyone who tells you the not so good things involved.  That’s why I’m here to tell you all about what to expect when searching for a foreclosure property.

First things first, you have to be mentally prepared.  From the get go you have to realize that a majority of foreclosed homes are not in perfect condition.  If  you’re a first-time homebuyer looking to move into something brand new with no work needed, then don’t even bother looking at foreclosures.  These properties have to be purchased in as-is condition.  This is very plain and simple on paper, but you would be surprised on how many people think the seller(bank) should fix the smallest things.  If there is a stain on the carpet, hole in the wall, missing washer and dryer, broken doors, funky smell, missing blinds, you are responsible for repairing or replacing these items.  You have to take a step back and look at the entire picture.  You’re getting a home for tens maybe even hundreds of thousands of dollars below the market value. You can afford to do some repairs to the home.

Be ready to pull the trigger when you see something you like.  I’ve said this a hundred times and I’ll say it again, “If you like it, chances are 20 other people do too.”  Don’t let losing a couple contracts to higher bidders make you realize that you need to act quickly.  It usually takes the average first-time homebuyer 3 lost contracts to realize that they need to stop hesitating and be aggressive.  This may mean putting in a contract the same day as the home comes on the market.

Next, there may be issues with the type of loan that you choose.  If you’re choosing to go with a FHA loan because of the smaller down payment, expect to close later than 30 days.  There are a lot of guidelines that FHA has to follow and if the home is in bad shape, it may not appraise.  Remember that there are hundreds of foreclosed homes out there and you’re not the only one that is closing that month.  The appraisers are backed up and on their own schedule.  Get it in your head that you may not close on time.  You want to make sure you choose a lender that has experience in foreclosures and keeps in constant contact with you.  You should be emailing or talking on the phone with them at least 5 times a week if not more.  There are so many procedures on the lenders side that you will want to stay on top of them too.

Moving along, you can get a home inspection for informational purposes ONLY.  This is to protect you in case there is anything majorly wrong with the home that cannot be seen by the naked eye.  Some issues could involve plumbing, electrical, or mechanical defects.  This is the point in the process where most buyers flip out because they find out there are little things wrong with the home (i.e. leak in sink – some pipes need tightening).  The home inspector points out everything that needs attention and it’s the buyers job to tend to those needs. Don’t freak out when there is a long list of issues that need to be addressed.  As long as nothing catastrophic comes up, you’ll just have to spend a weekend being Mr. Fix-It.

Lastly, the seller(bank) is not going to be at the closing table when you go to settlement.  It will be you, your agent, and the settlement agent.  When you finally close on the house, you will need to change the locks on the doors and call your HOA or Condo Association.  They will have mailbox keys if needed, parking permits if needed, details about the trash situation, and any pertinent information about restrictions in the neighborhood.

Overall, just be MENTALLY PREPARED and everything will be a lot easier on you.  The biggest issue I have seen is buyers being shocked or getting stressed out because they had no idea what a foreclosure entailed.  Now I’m not saying that purchasing a foreclosure is a nightmare by any means, but there are speed bumps that may arise and you need to be aware of them.

HAPPY HOUSE HUNTING!

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