8 Ways of Purchasing a Pre Foreclosure Home

A bank can foreclose a property and sell at auction when a borrower lapse on their mortgage. Before that happens, the property is at a pre-foreclosure status.

This status gives the seller two options: make good on the loan or sell the property outright. Typically, an investor can purchase a pre-foreclosure property at a much lower price.

There are 8 ways an investor can purchase a pre-foreclosure property, to include:

1. Grasp the process of pre Foreclosure

The first way in the process of foreclosure is called pre-foreclosure. The process may vary according to state rules and lenders. Traditionally, a default notice will be issued by the bank to a seller having three succeeding missed mortgage payments. This starts the process of pre-foreclosure.

The bank is ready to foreclose the property as soon as they issue a default notice. The process of foreclosure can be stopped if the seller makes good on the loan within the grace period of 2-3 months. This means that the seller has to arrange for an acceptable payment process plus late fees with the bank as a way to update the status of the loan.

The seller can sell the property usually at discounted prices if he can’t meet the payments. The seller is at risk to lose his property to the bank if he cannot sell it during this period.

Contrary to popular belief, pre-foreclosure properties are situated in poor neighbourhoods and in distressed condition. Some pre-foreclosures happen in good locations that otherwise may not be afforded by an investor. However, expect to fix a few things because it’s a likely scenario since the seller can’t even keep up with mortgage payments.

2. Finding pre-foreclosure properties

Pre-foreclosure properties are seldom if at all, listed in normal listings. They are not yet for sale so they are off the market. While looking for leads means a great deal of legwork, knowing where to look easily takes off the guesswork.

Some of the places where pre-foreclosure properties can be found include:

  • Recommendations from real estate wholesalers
  • Local county clerk’s public records
  • Lawyers
  • Local newspapers

3. Knowing more about the pre-foreclosure neighbourhoods

Knowing more about the neighbourhoods surrounding pre-foreclosure properties is crucial. This is because you can’t do anything about the neighbourhood even when you are capable of fixing the house.

A good neighbourhood should have these qualities, to include:

  • Located near areas of attractions and amenities to include local businesses, parks, restaurants, and shopping centres
  • Near good schools
  • Saleability of the property
  • Easy walk to amenities without using any motorised vehicle
  • Condition of nearby homes and buildings
  • Condition of roads, sidewalks, and street lamps

4. Get a pre-approval letter and a lender

A pre-approval letter will let you know the allowed maximum borrowing amount you can get. This does not mean that the full amount showing on the pre-approval letter will be used to buy a house. It means that you can set your budget on it. The letter is also one way of telling the seller that you’re qualified and serious about buying the property.

Requirements to get a pre-approval letter include:

  • 2-3 months statements from the bank
  • Driver’s license and other types of ID
  • Tax returns going back 2 years
  • Updated income reflected on 2 recent pay slips
  • Credit report

Securing a loan includes:

  • A recommendation from your accountant, lawyer or real estate agent
  • A good relationship with a credit union or bank can likely give you a permanent loan
  • A hard money lender’s rehab short-term loan

5. Narrowing the search to get the perfect pre-foreclosure property

Narrowing your search saves time, effort, and money. You can do this by using the internet to look for pre-foreclosure that interest you.

Searching for the perfect pre-foreclosure must include these qualifications, to include:

  • Popular neighbourhood amenities like a backyard or garage
  • Repairs that stay within the budget
  • A home with good bones. The size and structure of the house should be considered as it would prove too expensive to change

Some nice things to look for in a pre-foreclosure property:

  • Rooms filled with light
  • Open floor plan
  • Walk-in closets

6. Time to make an offer

After everything’s been done and said, it’s time to make an offer to the seller. Closing on a property takes the same time as purchasing a non-foreclosure property. The deal usually takes around

30-60 days after the offer has been made and approved by the seller.

Closing on the property can take as little as 10 days when payment is made through a hard money lender or using cash.

7. Have a financing commitment issued

A financing commitment is stronger than a pre-approval letter. The financial commitment will only be issued by a lender when the following requirements are met:

  • Contract of purchase
  • List of current liabilities and assets
  • Complete mortgage application
  • Property appraisal
  • Payment of application fees, if any
  • Details of the property
  • Documents telling where the money for a down payment is coming from

8. Closing on the pre-foreclosure property

Closing on the pre-foreclosure property is the last way, making it legally yours. This period is where the new owner’s name is transferred to the deed of the property. Transferring of the deed takes around 60-90 minutes.

Closing costs will all be charged to you. This includes lender fees, property taxes, title insurance, transfer taxes, etc. Disbursement of funds from you, the seller, and lender are usually handled by the buyer’s choice title company.

The key is then handed to you and the property now legally belongs to you.

Here are the things you must do as soon as you get the keys to the property:

  • Turn on utilities when they are transferred to your name
  • Change all locks
  • Lower your carrying costs by fixing the property right away
  • Advertise the property as soon as it’s ready to be occupied

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