Foreclosures in 2023: What You Need to Know

Helpful Tips on Purchasing a Foreclosed Property

Differences Between Foreclosed Properties in 2023 vs. Previous Years

In the case of foreclosures, gone are the days when bargain hunters had to follow auctions put on in front of courthouses or dig through endless amounts of legal filings. Especially during the 2007-2008 housing crisis, the housing market was flooded with available properties, and at the time, processes were made easier in order for potential bidders to find and purchase them in order to salvage as much of the housing market as possible.

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In recent years, this process of finding a foreclosure has been simplified either further, where searching for a foreclosure home can be very similar to any other home search. However, the inventory for foreclosed homes has been literally non-existent due to the aftereffects of Covid-19, where the people selling and purchasing homes, were at a standstill for a time.  This was coupled with the shortage of lumber and other building materials, putting a halt to much of new construction.  The result was a depleted inventory of not only new construction homes but resale homes as well.   When the housing market began to move again, much in part to unprecedentedly low-interest rates, the pace of resale homes coming on the market could not meet the demand of home buyers.  The new construction industry had to deal with the delays of their supply chain issues,  and also increased cost of lumber and other building essentials. It was in this environment that the post-Covid seller's market was created, where homes were being purchased through multiple offer situations and over-list pricetags. Cash was king, and only pre-qualified buyers willing to outbid, and overlook repairs were winning contracts.  Thankfully, in recent months, things have eased a bit.

Can We Expect an Increase in Foreclosed Properties in the Coming Months?

With a rise in foreclosures and the number of distressed properties on the market, there could be a slight shift in the home market, as more people will begin to wait for a foreclosure in order to wade into or continue to invest in the housing market. As the number of foreclosed homes increase, you could see a decrease in people purchasing new home build.

An increase in foreclosures, while not ideal, could create an opportunity for first-time home buyers who have yet been able to break into the market due to price, being outbid, or lack of home inventory.

While foreclosures are not expected to reach 2008 levels by any means, a slight increase in foreclosures can mean a bit of a balance to the housing inventory, and thus help stabilize both home prices and rental prices.

How hard the housing market is hit with foreclosures depends strongly on the area you live in.

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Purchasing a Foreclosed Home

When buying a foreclosed property from a bank, we highly recommend hiring an expert real estate agent to bargain on your behalf. Banks tend to have sizable inventories and are more inclined to negotiate on price. If you can pay for the property and renovations in cash, you are in an even better position. This is why some buyers will partner up with other investors to be able to purchase the home and pay for the renovations in cash.

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Financing a Foreclosed Property

You have the option to use a mortgage to buy a foreclosed property, however, private lenders can be skittish about financing foreclosed deals. On the flip side, several government-sponsored financing options are available for buyers who qualify.

203(k) Loans (Rehab Mortgage Insurance)

Designed by the FHA, these loans help reassure the concerns banks have when purchasing a high-risk property. Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.

HomePath ReadyBuyer

This program is geared towards first-time home buyers and is offered by the Federal National Mortgage Association (i.e. Fannie Mae). Buyers must complete a mandatory homebuying course which then they can receive up to 3% in closing cost assistance towards the purchase of the property.

What to Expect When Purchasing a Foreclosure

Purchasing foreclosures is NOT for the faint of heart. While you usually are getting a “deal” on the property, it is important to think about the time, money, and effort it will take to get the home to be the way you want it.

In some situations, the previous homeowners will leave the home in complete disarray. You must have a good chunk of cash set aside to cover the cost of making the home livable again (i.e. appliances, fixing any damage done by the previous owner, etc.)

If you have questions as to what you should pay for a foreclosed home, give us a call. We have a comprehensive process to ensure you are making the best financial decision possible.

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