Wondering how to buy a pre-foreclosed home? It’s a smart choice in the current Austin housing market.
As people struggle to pay their mortgages due to a job or income loss due to the pandemic and Texas home prices rising 6.5% in cities the market provides an opportunity for people looking to buy a new home.
Buying a pre-foreclosure home allows the seller to avoid foreclosure and cut their losses. Pre-foreclosures enable homeowners to avoid going deeper into debt and damaging their credit when a home’s foreclosed.
Have you been thinking about purchasing a pre-foreclosure? Want to know about how to go about doing so? Here is a step-by-step guide on how to buy a pre-foreclosed home.
Benefits of Buying a Pre-Foreclosure
When a home enters pre-foreclosure, the homeowner still has an opportunity to pay the bank by selling the home to pay off the loan balance. This helps them avoid having a foreclosure on their credit, which is more damaging than a pre-foreclosure.
It benefits buyers because they get the home at a lower cost than the market value. And it keeps the house from going on the market for sale. It can be a win-win for all: the seller, buyer, and the bank.
In a pre-foreclosure, the seller can still avoid damaging their credit with a red mark on their credit score for seven years. And they can still leave with equity in the property.
Due to the pandemic, people are looking for low-cost deals, and these opportunities are beginning to come up in the housing market.
How Homes Enter Pre-Foreclosure
Homes can enter pre-foreclosure for a variety of reasons and circumstances. One as we touched on is a job loss or a loss of financial income due to unforeseen circumstances.
Other reasons include the death of the property owner, a couple getting a divorce, or another unfortunate situation that causes someone to fall behind on mortgage payments.
These circumstances can turn people’s lives inside out. It’s unfortunate but a pre-foreclosure can help prevent it from getting worse.
The Timeline for Entering Into Foreclosure
When a homeowner doesn’t pay their mortgage for months, they can go into pre-foreclosure when an agreement to pay can’t be made. At this time, lenders start foreclosure procedures.
The lender sends out a public notice called a “notice of default.” This notice becomes public record. That’s when investors and realtors learn when homes enter pre-foreclosure.
The timeline of starting pre-foreclosure used to vary from bank to bank. But recent legislation permits homeowners to have 120 days to go into foreclosure.
This is known as a 120-day loss mitigation period. This means a lender has to wait until a property owner is 120 days past due before they can begin pre-foreclosure proceedings.
While the bank tries to communicate with homeowners to make a resolution, this isn’t always possible. Depending on the state you live in determines when the home goes up for public auction. New York and New Jersey hold the longest periods.
How to Find a Pre-Foreclosed Home
There are different ways to find pre-foreclosures. They’re usually not advertised but you can find information once the property receives a notice of default.
One place you can look is at your county recorder’s office. But if you want to avoid the trek downtown or wherever your county clerk is located, you can find pre-foreclosure properties online.
Companies sell lists of foreclosures that can be purchased with a subscription fee. These companies do the research for you in exchange for a price.
They travel to the offices and collect the data. Then sell it to people and businesses who want easy access to the information online.
Who Buys Pre-Foreclosures?
Purchasing pre-foreclosures is a big market for investors. They pay cash for the home, fix it up, and resell it for a good profit. But they’re actually available for anyone to purchase who has the cash or the funding.
But know this: often these properties are beaten, battered, and neglected. This can occur when a homeowner hasn’t had the money to maintain their home in proper condition.
Another reason this occurs is when there’s a disgruntled homeowner involved. They’ve lost their home after making a downpayment and paying their mortgage for years.
How to Buy a Pre-Foreclosure Home
You can try mailing a homeowner before a property goes up for auction but it’s best to speak to an investor or realtor. You don’t know the state of mind of the property owner, so it’s best not to go knocking on their door unannounced.
On the other hand, if the homeowner is agreeable after you send a letter, they may allow you to walk through the home to see what needs to be done.
The home may need a lot of repairs. If you go this route, try to be compassionate and tactful. They’re experiencing a disheartening situation.
What to Pay for a Pre-Foreclosed Home
People often have this question: What offer should I make? It’s a good rule of thumb to shoot somewhere in the middle when buying a pre-foreclosure.
For example, if the homeowner owes $150,000 to the bank, but the home’s value is $200,000, you may want to offer $175,000. Make sure to consider the cost of fixing the home if it’s been neglected.
Cash or Financing: What’s Best?
While you can apply for a mortgage, the home is more likely to sell with someone with a cash offer. While there are some exceptions, cash is a more favorable option when it comes to pre-foreclosures.
Thinking of waiting until the home goes to auction? Then you’ll definitely need cash, and you may not get to view the inside of the property which can impose a high risk that comes with many surprises.
How to Buy a Pre-Foreclosed Home: Everything You Need to Know
In our step-to-step guide, you’ve learned the details of how to buy a pre-foreclosed home. Now you need to decide if buying one is right for you.
Looking to buy or sell a pre-foreclosed home in the beautiful, happening city of Austin, Texas? Contact us today to get the best offer.