Buying Pre-Foreclosure Homes

When a homeowner doesn't make their payments on time, they go into what's called "default." This is the first step of the foreclosure process. The lender will file a notice of default, which is a public document and the home will go into the pre-foreclosure process.

When a pre-foreclosure home is for sale, it's because the owner has agreed to sell the home on the condition that the bank or their lender will accept a lesser amount than what's owed. Essentially, the homeowner can use the proceeds of the sale to settle their debt, even if the sale amount is less than the total mortgage owed.

Buying a pre-foreclosure home can be a great way to save money without competing against all the investors who focus solely on foreclosed homes. However, former owners who lose their home to foreclosure or pre-foreclosure often leave behind a less-than-pristine property. In this article, we'll cover how you can find a pre-foreclosure property that won't be a money pit.

When purchasing a pre-foreclosure home, you need to:

1. Negotiate, negotiate and negotiate. Remember, the seller is very motivated and very eager to sell and you're in the power position. While foreclosed properties are often offered at auction, pre-foreclosure properties are typically sold by the owner or the trustee, meaning you're in a better position to negotiate.

2. Inspect. While you should always inspect a home before you buy it, it's even more important to have a foreclosure property fully inspected. If you're buying the home at auction, consider hiring an inspector to attend the viewing with you.

3. Ask for a written disclosure of the property condition. While this isn't always possible and many foreclosure or pre-foreclosure homes are sold as-is, you can sometimes ask for a list of all the defects you're accepting with your "as-is" purchase.

4. If you're buying a foreclosure or pre-foreclosure property, look for specific loans or financing options that are targeted specifically towards foreclosure homes.

5. Use an agent that specializes in foreclosure and pre-foreclosure properties. An agent that knows how to navigate the foreclosure system is worth the cost and can save you a lot of money and a lot of headaches in the long wrong.

6. Look for a loan that includes extra financing for home renovations. Because most foreclosure and pre-foreclosure properties require a lot of extra work, you need to consider the cost of those improvements into the price of purchasing your home.