Reasons to Buy Pre Foreclosures
Posted on September 25, 2008
Filed Under Bank Foreclosures |
Almost everyone has heard of foreclosures, but most people may be unsure about the meaning of the word. Usually, most people who want to become homeowners cannot afford to pay outright for the homes. This leads to the person taking a loan and dealing with periodic mortgage payments. In many cases, an individual may be unable to continue payments. The lender generally allows a certain amount of time for the individual to make his mortgage payment. If a defaulter is unable to make the payment even after the grace period has passed, banks and other lenders repossess and sell the property, usually at a discount, to ensure a fast sale.
Pre foreclosures are those properties that are in the final stages, before being taken back by the bank or the lender. It is still owned by the homeowner; however the lenders loan is in default. This means that the original owner is in charge of the property, but if he does not pay the mortgage to the bank, the financier will soon repossess the home. A loan goes into default once the mortgage payment has not been made within the required 30 days. After 90 days pass without payment, a list of people in default goes on record at the local courthouse. This list is called the 90-day Notice of Default. The bank does not yet own the home, but it does own the mortgage, which is in default.
There are a lot of benefits in buying pre foreclosures. First of all, the prices of such properties are lower. The owners are in a hurry to sell the house before the bank forecloses. So, they are more inclined to consider the offers they receive. It is possible to find pre foreclosures that are as much as 50% less than the market value. You also have the advantage of dealing directly with the owner. The buyer is in control in a pre foreclosure deal. There are no carrying costs. Until you sell, no one makes any payments. The profit is not eaten up by outrageous holding costs.
You can create equity by requesting a lender to take less than what is owed. Lenders often agree to do this because they really dont want to repossess the property. Foreclosures look bad on the banks record. This process of discount creates new equity and earns more money for you in the deal. Thus, you can create an unusually large equity spread.
Buying houses in your own name and on your own credit is quite dangerous. In pre-foreclosure deals you are taking over the existing debt, which continues to be in the sellers name. So, the finance is already in place, even before you buy. This reduces the liability, while enjoying all the tax benefits, depreciation benefits and actual appreciation of the property.
Bidding against others at auctions may not be your cup of tea. It is easier to anticipate everyones ideas and move in and complete the deal, before anyone else. It is a niche market with very little competition and therefore has space for you to learn and become an expert in building long-term residual wealth, without much money or credit. Finding pre foreclosures is the same as locating homes that the bank already owns. They are listed in the newspapers, online and with the lenders directly.
Comments
8 Responses to “Reasons to Buy Pre Foreclosures”
Leave a Reply
What are the main reasons for home foreclosures ?
retiring in two years, best time to buy while market is down ?
Failure to pay the monthly payment for more than 90 days.
How did people end up in that predicament?
STUPIDITY: Could not understand their loan terms.
GREED: People expected housing prices to rise indefinitely.
References :
Because people can't pay their mortgage.
If you're retiring in two years, make sure you have enough money to make your monthly payments even after you retire. Get a full financial needs analysis to determine if what you intend to spend will jibe with what you'll be bringing in.
References :
high or flexible interest rate, getting a loan they can not afford, and the banks giving them a loan they could not afford. This is the basic of why there are so many foreclosures.
References :
The reasons for the wave of foreclosures is that a lot of people were getting adjustable rate mortgages thinking that if the rates went up that they would simply refinance. Well that didn't happen because the mortgage companies started being more strict to qualify for the fixed interest loans and people were stuck with mortgages they couldn't pay for.
And for your second question: Yes, now is a great time to buy if you can qualify for a loan with the tighter restrictions.
References :
I think a lot of people bought more than they could afford. Top that off with the current economy, lay-offs, etc. and it's more than they can handle. On the other hand, a home is in foreclosure one year before the owner is evicted. Honestly, they have an entire year to figure out another plan, and many of them flee in the middle of the night just before the sheriff shows up at their door to carry them out. So I don't know. I guess if you quit paying your loan for 12 months, yeah. You probably deserve to get the boot.
Not sure I understand your second question, but yes. Now is a good time to buy. Rates are still pretty low, and there are a lot of foreclosures out there and people on the brink. If you want to buy, do it now before the interest rates go up, which is what they are predicting.
References :
I work with realtors and mortgage lenders. Just had this discussion in a big meeting yesterday!!
The main reasons? There are a lot of reasons.
Relaxed lending requirements (no longer)
Over inflated home values (declining values nation wide)
Jobs continuing to go over seas (loss of jobs)
The devaluation of the dollar (look at the stock market)
People's inability to budget their income (over buying)
Secondary Lending issues (fraud)
The price of gas (who can afford to drive to work)
General Inflation
You name it…
The best time to buy is now. Its hard to time the market…if you could…everyone would do it. Will prices continue to drop? Probably…but I doubt to much more. Your question should probably be…can you qualify for a mortgage now?
If you already own…a good option for you may be a reverse mortgage…if you have equity.
Good luck and happy retirement!
References :
Excellent answer AN-MN Centaur.
Lenders also approved applications for borrowers, even if all the requirements were not met. Thus, borrowers and lenders get stuck and so the vicious cycle begins-foreclosure.
The market maybe down, but prices are still high depending on the area you want to buy. Check the business page of the Chronicle, or, other Newspaper, you'll find some useful information.
References :