Buying a Foreclosure: What Do Buyers Need to Know?

Buying a house that isn't a foreclosure can be a lengthy, confusing process in and of itself, but buying a house that is a foreclosure can bring with it a whole different set of problems and confusion. Before you buy a foreclosure, be sure to educate yourself about what to expect before, during and after the process.

One of the very most important things to know before buying a foreclosure is that the process will likely take some time. Don't expect it to be a quick process, and don't expect it to go smoothly. By the very nature of a foreclosure, at least one bank will be involved in the process, and banks are notoriously slow when it comes to making an agreement with a potential homeowner. Bottom line: if you're in a hurry to be a homeowner, you might reconsider buying a house that isn't in foreclosure.

Choose a realtor with experience in foreclosures. Because the process is a little different than a standard property purchase, it is helpful to know the ins and outs of buying a foreclosure home. Realtors with this kind of experience may also know how to expedite the process.

Consider title insurance as an option. In late 2010, banks and law firms cut corners on foreclosure paperwork, and some lenders proceeded to suspend foreclosures to review that paperwork. In some of these cases, foreclosures weren't valid because of confusion, and previous homeowners seized the property. With title insurance, the new owner will keep the house, and the previous owner is otherwise compensated.

Plan on getting a letter of prequalification or a Proof of Funds letter from your bank. This will not only be peace of mind for you, but many realtors require proof of funds before even showing a foreclosure, and nearly all banks require this paperwork to place an offer on a bank-owned property.

Watch out for statements when it comes to "as-is" properties because banks are rarely willing to make improvements to foreclosures. Be sure to have the house inspected early on in the process to avoid emotional attachment to a house with lots of expensive repairs, some of which may potentially be long-term.

Have realistic expectations for the final sale price of the home. Just because it is a bank-owned property doesn't mean that it will be "a steal". Banks want to recoup as much money as possible through sale of foreclosure properties, and having an unrealistic expectation of the final cost of the home will only create problems during and after the process. Check comparable homes in the area and adjust the advertised sales price of the foreclosure home accordingly. Though many foreclosure properties do wind up being smart purchases, do your homework to be sure that this purchase makes financial sense for you and your family.

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