How to Buy a Pre-Foreclosure Home

When buying a home for the first time (or tenth), one option to look at is purchasing a pre-foreclosure home. While it is not ideal for a seller, it can be an excellent opportunity for buyers and help sellers avoid having a negative credit report. Let's dive into how to buy a pre-foreclosure home.

What is a Pre-Foreclosure

A pre-foreclosure is the first step in the legal process of foreclosure. It allows homeowners a chance to fix the situation that may be causing them to miss their mortgage payments, allowing them to keep their homes. Typically, when a home goes into pre-foreclosure, a homeowner may sell the house for less than what they owe - a short sale. However, this is unlikely to happen as banks are often involved with a pre-foreclosure deal.

Buying a Pre-Foreclosed Home: Pros and Cons

Pros of Buying a Pre-Foreclosure Home

• Motivated Sellers: Sellers of pre-foreclosures are often motivated to sell the home quickly, meaning they are more likely to accept the first offer. A pre-foreclosure sale has less negative impact on credit reports than a full foreclosure.
• Lower Costs: Buyers may get a better deal because sellers often accept lower offers and sell as-is, leaving room to negotiate based on needed repairs.
• More Financing Options: Some sellers may carry the loan directly. This benefits buyers who might have difficulty securing financing through a traditional lender.

Cons of Buying a Pre-Foreclosure Home

• Slow Process: Banks and sellers may be unresponsive, and you might have to wait for the property to be vacated.
• Competition: Lower prices can attract multiple buyers, potentially resulting in bidding wars and higher final prices.
• Structure Issues or Possible Damage: These homes are sold as-is and may come with significant repairs or damage that you discover too late.
• Unforeseen Costs: You may encounter unpaid taxes or liens and extra inspection or survey costs.
• Unpredictable Risk: Legal or financing issues can cause the deal to fall through. Due diligence is essential.

How to Buy a Pre-Foreclosure

Get Pre-Approved

Pre-approval strengthens your offer. A lender reviews your financials and tells you how much you can borrow. Valor Mortgage can help you get pre-approved for a home loan.

Find a Pre-Foreclosure

Work with a real estate agent experienced in pre-foreclosures to find hidden deals. Agents may have access to listings not advertised to the public.

How to Find a Pre-Foreclosure

Check public records at your county clerk’s office. Use online tools and services such as foreclosure listing websites and databases.

Inspect the Neighborhood

Talk to neighbors and local business owners. Learn about schools, safety, noise, and other factors that could affect your decision.

Make an Offer

Always have a backup plan. Be open to negotiating and carefully review the purchase contract before signing anything.

Get a Home Inspection

If the inspection reveals major issues, you may want to renegotiate or walk away. Inspections help you plan for repairs and future maintenance.

Close On Your Home

Prepare for closing costs, your down payment, and mortgage payments. Consider working with a real estate attorney or title company to streamline the process.