What is a Preforeclosure?
As the name suggests, a pre-foreclosure (also spelled preforeclosure) is a property in the beginning of the foreclosure process. When a property is in this pre-foreclosure phase the homeowner still has the ability to stay in the property but is under the pressure of eviction to make their payments to their lender. If these payments aren’t made, then the lender can proceed to repossess the property ultimately causing for the property to become a foreclosure.
What does a pre-foreclosure purchase entail?
Although the homeowner may still be living in the property, you do have the opportunity to purchase it. Now buying a pre-foreclosure is slightly different from a normal listing as you won’t be purchasing the property for the current value, rather you would be purchasing the remaining mortgage due to the lender.
For instance, a property has a value of 200K and the homeowner has 150K left on the mortgage. If you were to purchase this property you would be acquiring it for 50K less than the property value which is quite a savings that could be then be used to invest in the house (instant equity).
Purchasing a pre-foreclosure can be a great option for both you and the homeowner. For one, you can purchase the property at a tremendous discount leading to greater profits if you ever go to resell. Additionally, pre-foreclosures aren’t typically broadcasted to the public about being on the market so you have a possibility to find a hidden gem with much less competition interested in the property.
Even with pre-foreclosures being possibly great deals with little competition you still have to be smart about your purchase. When interested in such a property you must think of the current state of your finances, the condition and location of the property.
When it comes to your finances with a pre-foreclosure, first thing first is that you need to ensure that you have enough money to cover a down payment and the monthly payments. With the property being in a state of pre-foreclosure it’s not likely that you will get a ordinary loan so you’ll need to look elsewhere for a trust worthy source.
As for the condition and location of the property itself, it is wise to get a professional inspection. At first glance it might look like all it needs is a coat of paint and some landscaping but a professional will be able to tell you if there is mold, a foundation problem or any other bank breaking problems. A professional inspection could very well save you from a financial nightmare so you should find out all of the little details as soon as possible.
Aside from the condition of property, take a look of what is around. Is it in an up-and-coming location? Is it near popular retail shops? Investing in a property that is in the right neighborhood can be essential in the appreciation of the property in the long term.
As for the homeowner, selling the property in this stage can save their credit as if they were to go into foreclosure their credit would suffer a devastating blow. However, it is important to note that the property could be in need of repairs that need to be completed before the sale of the property is finalized.
Good luck finding the right pre-foreclosure deal for yourself. Take an organized approach to help simplify the process of bidding on foreclosure properties, use the checklist at this location: