Thinking to buy a foreclosed property but before that let us take a look into what means when we say a foreclosed home.
A Foreclosed Home or Real Estate-owned Property(REO) is a home that comes under the possession of the mortgage lender (or bank) and is put on sale when the borrower is unable to pay the loan.
There can be various reasons borrowers are unable to pay the mortgage payment like being in excessive debt, medical issues, emergencies, and many other reasons. The property is used as collateral and the lender is allowed to take back the home when the borrower defaulted on the payment. The borrower guarantees repayment by providing collateral. The home is used as collateral in these cases.
Firstly, when the borrower skipped 3-6 months’ payment, then the lender publishes a public notice known as a Notice of Default(NOD), which states that if the loan is not paid then actions will take place against him. Then the homeowner has 90 days to take action.
Either he pays the loan otherwise his house will be put up for auction. The Bank sets a reserve price, which is the price at which the property was bought, which is the minimum amount for covering up the loan. They advertise it in the newspapers and the information can also be available at the bank branch as well.
Some paid websites also have the information for the auction. The property auctioned by the bank comes under the SARFAESI Act.
Buying a foreclosed property has some merits as well as demerits: Let’s take a look at this.
The foreclosed property is approximately 20-25% cheaper than the other properties. As the bank doesn’t want to earn a profit, it only wants to recover the debt amount as soon as possible. So the property is sold at lower prices. They offer huge savings for homebuyers.
If you buy from a homeowner then maybe there will be cases that the taxes had not been paid earlier or some other issues you might face. But in buying foreclosed property all such title has been cleared by the bank for you. So you don’t have to worry about it. You can be free from any legal hurdles.
If you want to buy a property not willing to live in it. It can also be used as an investment opportunity. For Example: If you have enough money to buy from a foreclosure then you can buy it as it is at a lower price. You can fix the house and can sell it. It will owe you a solid return on your investment.
You can get mortgage loans for buying such types of property from the banks just like the other properties.
Buying other properties in the open market can take time to be constructed and redeveloped and most of the time you have to do the pre-booking of the house. But these foreclosures are already built properties, so you can move to the house as soon as you pay the amount. It saves you time, money, and energy as well.
The foreclosed home being owned by banks usually have low maintenance. The home may require minor repairs and renovation. Many foreclosures are sold on an ‘as-is’ basis which means you will not be able to see the house until and unless you buy it. This can be considered a deal breaker for many buyers. You can only inspect the house after submitting your bid.
Apart from this, one should have at least 10%-20% of the purchase price in the budget for the necessary repairs and fixing of the home.
Since many people are willing to buy the property, sometimes it became very difficult to buy it. Many auctions are now-a-days been done online. You have to be very quick in this process. Apart from you can also consult a Real Estate Agent or Real Estate Attorney for the same. As they are connected with the banks in dealing with these properties.
Bank asks for 10% of the property price as deposit money before allowing participation in the bidding. Approximately 25% of the remaining money has to be deposited by you by the next working day if you win the auction. The remaining 75% of the amount should be paid within 15 days of the auction.
It is very difficult to get loans from the banks on such short notice, therefore you have to be prepared with your finances. Apart from this, you also have to pay for the stamp duty and registration fees.
Buying a foreclosed property can be a boon or a bane depending upon all the factors mentioned above. If you take wise decisions and overcome all the challenges then definitely you will get a good deal.
The most important thing to keep in mind is to make your finances ready and also you should research that particular property to avoid any obstacles in the future. Connect with Real Estate Agents, they will help you out with the same. Now take your decision wisely.
Also check the official website to find the related properties,
ForeclosureIndia – https://foreclosureindia.com/