Foreclosure Purchasing for First Time Home Owners

Foreclosure homes are an opportunity for first time home buyers to purchase their home at a discounted price.

At first glance, purchasing foreclosure homes may not be the first choice for first time home buyers. When the word foreclosure in mentioned, an image of a run down shack in bad need of repairs comes to mind; quite different from the image of a dream home that most home buyers have. However, the major draw that foreclosures have is that these properties can be purchased at a discounted price.

Foreclosure homes are properties where a lender has initiated legal proceedings to take back possession of a property because the property owner has defaulted on the loan. There are basically three stages of the foreclosure process where first time home buyers can purchase properties – buying pre-foreclosure (including short sales), buying at the auction, and buying post-auction as a real estate owned (REO) property.

Each stage of the foreclosure process represents a different type of risk to first time home buyers. For example, a property in pre-foreclosure may still have tenants or even the home owner residing there. It’s also quite possible that the property is in poor condition and the utilities may have been disconnected. Foreclosure properties purchased at auction may have a clouded title and they may have undisclosed issues with the property. Additionally, properties purchased through auctions generally will require a 10% down payment in the form of cash or cashier’s check.

Prospective first time home owners should be aware of what kinds of prices they can expect to see. In today’s foreclosure market, properties are generally discounted anywhere from 5% to 10% depending upon property condition. Some foreclosure properties in excellent condition may not even be discounted at all. Despite this, don’t be afraid to try and negotiate a better price with the lender.

REO properties are the least risky foreclosure property to purchase. REO properties typically come with a free and clear title because any existing debt and liens on the property were cleared during the foreclosure process. Banks may also be willing to take on some of the costs for repairs and they may also be willing to negotiate a price reduction. Lastly, many banks offer special buying incentives for owner occupant buyers who purchase a property and finance the home through their bank.