So you heard that you can get a great deal by buying a foreclosure? The good news is that there is some truth to that. In Chicago, there are plenty of foreclosures to choose from that are much lower in price than your average move in ready home. However, just like everything else in life, foreclosures are not as easy for the average home buyer to get at TV makes it seem. In fact, it can take a lot of work, effort, and frustration to take a foreclosure and turn it into the home of your dreams. Allow me to show you the truth about buying foreclosures, and steps you can take to successfully buy one for yourself.
The Hard Truth
The first thing to keep in mind when buying a foreclosure is the condition of the property. Most (if not all) foreclosures will have a good amount of issues that will need to be repaired before you can move into them. Remember, a home is foreclosed on when a person stops making payments on their mortgage. That doesn’t happen unless the owner has run out of money. Since the foreclosure process can take months or even longer, the condition of the home deteriorates over time. The owner can’t make any of the necessary repairs to keep up the home, to the home just gets worse from there. Once the bank finally forecloses on the home, the owners tend to become disgruntled, and they damage the home out of spite. By the time the home goes on the market for sale, chances are it will not be in move in ready condition.
Next, keep in mind that in the Chicago real estate market, banks are not selling foreclosures at a steep discount like they used to. The reason is that the demand for foreclosures are still very high. There are a lot of buyers running around looking to buy home with all cash deals, so the banks know they can raise the prices. The banks prefer cash buyers over someone who is using a loan, which means it will be hard for the average home buyer, who is using a loan, to compete for these homes.
While we are talking about loans, if you were thinking about using an FHA loan to purchase foreclosures, think again. Since foreclosures are usually not in move in ready condition. FHA loans will not lend you the money if the home is not in move in ready condition, so that option isn’t available. What you can do is use an FHA 203k loan, which will also lend you the money for repairs. However, banks tend to only accept these loans as a last resort, because it is a lot harder to close using a 203k loan other loans. Click here to learn more about 203k loans. Otherwise, you will have to use the standard conventional loan.
How to Successfully Buy a Foreclosure
So what is the best way for the average, or even first time home buyer to purchase a foreclosure? First, decide how you are going to pay for it. If you use an FHA 203k loan, they will pay for the home and the repairs, but your mortgage will be higher and it will be harder to get a bank to accept it. You can also use a conventional loan, but those are harder to qualify for. However, they are easier to close, because you don’t have to worry about passing an FHA inspection. You can learn more about different loan options by reading my previous article.
Next, you want to figure out your budget for repairs. If you are using a conventional loan, make sure you have enough money saved up to make the necessary repairs to get the home in the shape you want it to be. This will help you to make better decisions when you start looking at properties, because you will be able to rule out the homes that will cost too much for you to repair.
Once you find a home that you are interested in that fits your budget, its time to make the offer! Making an offer is a little different for foreclosures. As I mentioned before, there is a lot of demand for them, so a lot of properties end up multiple offer situations. With multiple offer situations, it is not uncommon for a property to sell above listing price, to make sure to check with your realtor to determine the best offer for you.
Any questions or concerns, feel free to reach out to me. Thanks and have a great day!