Q. What should we look for in buying a house that has been foreclosed upon (or threatened with foreclosure)?
A. You can expect to pay a lot less for the millions of homes that are on the market because their owners defaulted on their mortgage, than for comparable houses or condos with up-to-date loans.
Although there’s always more risk in buying a distressed property, you can avoid many of those costly pitfalls if you know what to look for.
You will get a discounted price, but you should know what it will cost to make the home livable.
Good foreclosed homes are merely houses that have sat empty and neglected for months, with dead lawns, peeling paint and other relatively minor problems.
Other homes, however, have been trashed. Some people about to be evicted sell the cabinets, appliances, chandeliers and water heaters on Craigslist — and because that’s strictly illegal, they sometimes wreck the house trying to make it look like an outside burglary.
You should also know what the house is worth.
You need to know what the home you’re looking at sold for the last time it changed hands and what similar houses in that neighborhood are selling for now.
That information is all online, in public and private databases you and your real estate agent can easily tap.
If you’re looking at buying a home from an owner behind on his or her payments, you should find a real estate agent who has had a history with short sales and identify whether you’re a good candidate in the mortgage holder’s eyes.
Short sales are all about presenting the lender with a deal it can’t refuse. Banks and mortgage servicing companies are most likely to approve buyers that:
• Have a substantial down payment.
• Have been preapproved for a mortgage
• Place no contingencies on their contract, such as having to sell their current home before proceeding with the purchase.
Q. What kind of offer can we expect will be accepted?
A. They will ask their lender to accept whatever you’re willing to pay for their property, even if it’s less than the balance on their loan, and forgive their remaining debt.
The general rule of thumb is that lenders will accept a short sale if:
• You’re offering at least about 82 percent of the home’s current market value.
• The lender will lose less money by selling you the home at a steep discount than by going through the foreclosure process, and then selling the home to someone else at a steep discount.