What You Need to Know about Buying Foreclosures

There is a lure for prospective home buyers to the price of a foreclosure. These bank-owned properties are stirring frenzy with the lure of get rich quick investments. However with every investment, there are and disadvantages.

A potential buyer should consider his finances as well as financial goals before foreclosure investment. The following information may prove useful in making decisions about investment in the foreclosure arena. Develop a plan for foreclosure investments. Don't get so caught up in a home auction that you lose sight of your investment goals.

Choose a realtor with Foreclosure Experience

The realtor chosen to represent you should have experience in navigating bank requirements and foreclosures. Be careful when choosing the listing agent of the property as they have loyalties to the bank's interest before yours.

Purchase Financing

To purchase you must have a proof of funds if paying with cash and a purchase contract. If using financing, you must have a pre-approval or pre-qualification letter with your sales contract.

Property Inspections

Utilities are usually shut-off in foreclosures. The bank may allow for a turn-on for an inspection. In most cases, the buyers have to make arrangements. Make certain when the offer is written what the requirements are for a property inspection.

Establish market value

There are two common means to determine the market value of a property. There is an appraisal which can cost several hundred dollars and a Comparative Market Analysis. Both of these can determine value by comparison of similar properties that have sold in the same area.

Determine cost of repair

The cost of repair is imperative to determine if the foreclosure is the right purchase. There may be cosmetic or major repairs needed. Major repairs may require up to twenty percent rehabbing the home to a re-saleable state. Get several estimates from trusted contractors.

Analyze market trends

Do your homework with foreclosures and take advice from financial planners, attorneys and CPA's. Every moment spent on gathering information is a smart choice. Consider the factors of resale in the area before purchase. Not all foreclosures are a great deal.

There are also disadvantages to buying a foreclosure. Be aware of the following:

Buying a home without an inspection- structure, mold and hidden problems

If home is occupied, you may have to evict the tenants.

Foreclosures are sold as is, beware of the condition

Former homeowners may have maliciously destroyed property.

Foreclosures purchases are not for everyone. However, those who choose this method of investment with planning can make a great return on investment.