Which foreclosure state should you buy at?

Buying a foreclosure home can be a great way to save money on your purchase. But it’s not an easy process. Properties in foreclosure come with a lot of red tape, delays and difficulties that can make the process challenging. The first thing you need to know about buying a foreclosure property is that there are three states of foreclosure. Each state has advantages and disadvantages for buyers looking to snag a deal. Let’s explore each state.

Pre-foreclosure
In this state, the owner may have missed several payments or faces a significant financial issue. So, they try to sell the property fast to cover their debt before the lender initiates foreclosure. The seller may already be working with the lender to avoid foreclosure by lowering the property price to initiate a fast sale. The advantage of this state for buyers is that the sellers are highly motivated to sell the home fast, so the price point may be advantageous, or you may be able to negotiate it lower. In this stage, buyers can still use traditional mortgage financing. We recommend seeking pre-qualification for your financing before buying a home at this stage so you can move quickly.

Auction
At this stage, the lender assumes control of the property and puts it up for auction. The lender cannot profit from the sale, so the auction only covers the outstanding mortgage and applicable fees. The advantage for sellers is that they can often get significant deals below market value if they are willing to act quickly, but they wouldn’t be able to negotiate the price down over time. Sellers will also need the flexibility to make a cash bid and buy the property as is without an inspection.

Post-foreclosure
If the auction is not successful for the lender, the property then becomes the property of the bank or lender and can be sold on the market like a typical home sale. This sale allows the buyer to use regular mortgage financing options and negotiate with the lender’s real estate agent. The property is sold as is, and the lender usually has no history of the property or its condition. The biggest disadvantage of buying at this stage is that the property can still be sold at a market price, so you may not get as good of a deal as you wanted. You also have to be wary of any potential liens, back taxes, or other financial penalties that are listed against the property title.

Buying a foreclosure property at any stage is no easy task. It’s a lot more complicated than a traditional real estate sale. But it can help buyers score significant savings or unique properties. So if you are considering expanding your property search to foreclosure properties, here’s our advice. Visit your local PRMI office and get pre-qualified for financing first. Pre-qualification will make it easier to move quickly when you spot a potential deal because you already have approval in place!