With the market the way it is there is no way to avoid seeing all the foreclosures popping up in just about every neighborhood. And while you may know that it means you will get a discount on the price of the home, you may not be so clear about what the different stages of foreclosure are and in which stage is the best time to make the purchase.
There are three main stages of foreclosure, which include pre-foreclosure, auction and real estate owned (REO). Here are a few things to keep in mind when it comes to buying a house in each stage of foreclosure:
Pre-foreclosure. This is the stage where the homeowner may be falling behind on their mortgage payments and are unable to sell the home because they simply owe more on it than it is now valued in the market. The homes are in the foreclosure process at this point and you will save money on the price. While they may be a good buy, there is a chance that they are not always the best route, because each party involved will be trying to get the highest price they can. It can also be a time consuming route to buying a home, with negotiations dragging on for months.
Public auction. This is the period where the house is being placed up for auction because it did not sell during the pre-foreclosure stage. While you can often get a good purchase with this type of property, it also comes with a list of difficulties. There are often problems with the auctions and homes are usually sold “as is” and without inspections, so you don’t know what you are getting. You may think you are getting a great deal, only to find out that the home is riddled with expensive repair issues.
REOs. This is generally considered the best time to buy within the three stages of foreclosure. In this stage, the home did not sell during the other two stages and is now in the possession of the bank. Typically banks will want to unload the property quickly and will be interested in selling fast and at a good rate, which may be at or below market value.
Regardless of whether a home is a foreclosure or not, you will always want to keep the location in mind. If the neighborhood has a lot of crime and foreclosures you may want to consider a different area to help protect your investment.