US Foreclosure Market Update: The Latest News for Buyers

The Realtors Confidence Index Survey conducted by the NAR indicates that foreclosure sales are declining because banks are putting them on the market in a more organized fashion so as to prevent the further dumping of distressed properties. There is still quite a high inventory of foreclosure homes available for buyers who are serious about purchasing a distressed home right now. The 90 day foreclosure rate has declined, but the 30 day foreclosure delinquency rate rose in August 2011. Indicating that about 30% of all homes sales of the next two years will be distressed home sales.

The forecast is that foreclosures will continue to have a negative impact on prices, but industry experts do not expect the foreclosure situation to get worse. Interest rates are low and the Fed has vowed to keep them that way for the next two years, which is good news for buyers and homeowner who are interested in refinancing their mortgage. The bad news is lending guidelines have made it harder for buyers to get loans. If you have cash, you will have more opportunities to purchase foreclosure auction homes and short sales, which are pre-foreclosure homes that are still owned by their former owners, who may be in default or heading to default.  

Discounted Homes 

For investors and first and second home buyers, the foreclosure inventory and current market conditions are giving them the chance to pick up homes at bargain prices, but the condition of homes must be taken into consideration. Not all foreclosed homes are a good deal if they need substantial structural or system’s repairs. You have to be careful and do your due diligence so you are not rushing into buying a foreclosed home just because you think you are getting a bargain. A home inspection is imperative. The condition of the home will also impact your ability to get a mortgage and improvement loan. 

REO’s and foreclosure auction homes are sold as is so it is up to the buyer to conduct inspections. REO’s are homes that the banks have bought back because they did not sell at foreclosure auctions. Homes that are in fairly good condition that are offered for resale by banks are the best homes to look for because they don’t need a lot of repairs. In fact, many financial institutions that own REO inventory will also offer loans to the buyers on foreclosed homes that are in move in condition. But if you are buying a handyman special that needs major repairs, you will probably need to pay cash for home.

Risks Associated with Foreclosed Homes

While homes sold at auctions are offered for sale at deeper discounts, they are mostly purchased by investors for cash. There are more risks when you purchase a home at a foreclosure auction because you are responsible for paying off any liens on the home and evicting the former owner or any tenants living at the property, and you are unable to obtain title insurance. REO homes are more popular with first time home buyers or buyers who are looking to move up or scale down and want a bargain. REO homes offer buyers less risk because the bank has already paid off the liens, and you can obtain title insurance. The homes are still sold at discounted prices. If you are an inexperienced buyer, you probably should stay away from purchasing home at foreclosure auction and look for a REO.

Home Inspection

Either way, you should obtain a home inspection because foreclosed homes have been sitting vacant for a long time. Some homes have been empty as long as a year or two and are not being maintained. Because properties are sitting many times without utilities turned on there can be problems that develop. Some common problems you may encounter in a foreclosed home are mold, stripped appliances and missing heating and air conditioning units. Homes may have been vandalized, and you may have to replace broken or cracked windows. Former owners may have put holes in walls and ripped out pipes and kitchen counters and even taken the toilets and cabinets. A home inspection gives you the peace of mind of knowing the condition of the homes before you make an offer or bid at a foreclosure auction.   

Banks are not obligated to disclose the condition of the home to buyers are expected to do their due diligence. The Realtor must disclosed any material facts they are aware of regarding the home’s condition or other factors that may influence a buyer’s decision, but again you should not solely rely on this information either. A home inspection is the best protection you can have to making sure that your home is a good deal. While foreclosed homes allow you to purchase a discounted home with built in equity, it is a good idea to approach the transaction cautiously and educate yourself so you know exactly what you are getting for your money.

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