The pre-foreclosure takes place when a homeowner not able to pay the mortgage payments and is in danger of getting foreclosed. Before foreclosure of the property, the homeowner has a choice to pay the remaining mortgage amount to the financial institution or sell this property. The real estate investors always searching for pre-foreclosure and foreclosure properties because they are available at cheap prices.
The real estate agents show more interest in pre-foreclosure properties because they are not listed yet, therefore, there will be less competition for these kinds of properties.
Though most real estate investors are interested to purchase the pre-foreclosure properties. But, they do not know how to find these properties.
Here, in this article, we will discuss various steps that are involved in purchasing a pre-foreclosure property:
1. Understand Pre Foreclosure Process
The foreclosure process generally starts when homeowners fail to pay three consecutive mortgage payments. After that bank will issue a notice for pre-foreclosure of the house. This notice indicates that this house will be foreclosed soon.
After receiving this notice, the homeowner will have 3 months to arrange money to pay the mortgage payments to stop the foreclosure process. If the homeowner is not able to pay the mortgage payments, then there is another choice that is selling his home to the real estate investors.
2. Find Various Potential Leads
LIt is very important to know how to search for pre-foreclosure leads. The best way to sell the pre-foreclosure properties is to consult a good real estate agent. The licensed real estate agents can easily access the Multiple Listing Service (MLS).
This list can provide the data related to the pre-foreclosure properties. You can also try to access the county public records, contact real estate wholesalers, newspapers or local attorneys to find pre-closed properties. There is one more method to find pre-foreclosure properties – websites like Zillow.
3. Analyze the Location
After finding the right property, you should analyze that location. Make sure that this property is good for targeting future tenants. The location should liveable and make sure that this house has access to local amenities.
You should check whether this house is located near a good school, has access to good roads, good malls and parks nearby the house. These things are very important because they will help you to decide the market value of the pre-foreclosure house.
This analysis is also important because it will help you to find out the return on investment. For example, if you want to buy houses in Ohio, then you should analyze the location and nearby area in Ohio.
4. Start Search For Lender
Before start the purchasing process, you should look out for a lender. It is important to take approval for a loan from any financial institution so that you do not have to face hurdles in the last minutes.
Also, after taking pre-approval from the bank, you will get to know what is your maximum limit for investment to buy home.
5. Make A Good Offer
After taking an approval letter from the financial institution from the bank, you should make a good offer on the basis of your budget and the right market value of your property. Usually, 40 to 60 days are required to complete the closing process.
You can further reduce this time period if you are going to pay hard money. It is recommended to hire a real estate agent for this purchasing process because they will help you to get this property at a good price. They can negotiate with homeowners so that you can buy a home at an optimum price.
6. Receive a Financing Commitment
The financing commitment can be described as the assurance from the lender side that he will provide the required money. But, he will provide this assurance after getting true information that you are going to purchase a house. The lender will require the following information for providing financial commitment:
- Mortgage application
- Application charges
- Complete property details
- Documentation that shows the source of down payment
- Property appraisal documents
- Present assets and liabilities
- Purchasing contract
7. Close on the Investment Property
This is the final step in the entire process and the owner will sell a home to you. Closing is the stage in which the ownership is transferred to the property buyer. The transfer process takes place at the title company and it usually takes one to two hours.
After that, you have to pay the closing amount and this includes the fees of the lender, title insurance, transfer taxes, and property taxes. This closing amount will raise your purchase prices for 2 to 5%. After completion of the closing stage, you will be the owner of the pre-foreclosure property.
The pre-foreclosure properties provide good opportunities to real-estate investors. If you are looking for cheap properties, then pre-foreclosure properties are a good option.
Real estate investors should search for these properties because fewer investors know about pre-foreclosure properties, thus offering less competition.