I’ve been working with a lot of buyers lately, many of which have been purchasing foreclosures. If you are in the market for a foreclosure, here are some things you should know:
1) Is it a good time to buy a foreclosure? I can only speak for our market over here in the East Bay, but if it is the right house, and you can afford the payments on the house, then yes, why not? This is sound advice no matter the house or market. If it is under $200k then you will most-likely be in a multiple offer situation so be prepared.
2) What is the first step to take? As with any purchase, you must be preapproved for a loan. If you are looking to buy it as an investment or as a second home, financing may be a bit tougher and will probably cost more because lender’s typically charge a higher interest rate and may require more of a down payment for investment or second homes.
3) How can you tell if it is a good or bad house? Certainly there are good deals out there for both investors and people looking for themselves. But be careful, finding a truly good foreclosure can be tricky. You need to watch for unpaid liens such as garbage, mortgage debt, taxes, construction loans, home equity lines of credit, and even second and third mortgages. You don’t want to find out after you purchased the house that any foreclosure liens or fees were transferred to you.
4) Can I get a credit back from the bank after doing inspections? You can certainly try, but not all banks will give it to you. Hopefully you will still have your inspection contingency in place so that you can do a thorough investigation and make a sound decision should the bank not agree.
5) What are the costs involved with buying a foreclosure? Depends on if you have a loan. Outside of the loan, the costs are the same. If you are an investor, paying all cash is probably best. You will want to consider carrying costs such as vacancy rate, cost of repairs, taxes, insurance, realtor fees, etc.
6) What if I get into contract on a house where there are tenants or squatters in the property and they have stopped paying rent? This is becoming an increasingly common scenario. If the home is located in a city where there is rent control, such as Berkeley or Oakland, unless you marked on your contract that the home is to be delivered vacant, you may be subject to “tenants rights.” In many areas it can be extremely difficult to get rid of tenants so I suggest you speak with an attorney regarding your rights BEFORE you remove your inspection contingency.
7) Where are the best foreclosures? The $2000 question. This is changing almost weekly…call me.