Buying a home in a safe neighborhood with good schools may seem impossible if you have low income or low credit. However, it is possible. Consider buying a home in foreclosure. This requires a little more work on your end and learning foreclosure 101. But buying a foreclosed can have many advantages.
Advantages to Buying a Foreclosed Home
Buying foreclosed homes can be a strong real estate investment strategy, even if you don’t have a pile of cash lying around. Because banks usually try to get rid of foreclosed homes as quickly as possible, you will often be able to find them below market value. Make sure you do your homework and are prepared for what lies down the foreclosure road. Due to the lower price, you might find that you will have to do some renovation or repair work around the house. Make sure that you can handle the repair work, and that the costs don’t spiral out of control.
Another advantage of foreclosed homes is the higher return on investment. Many times you can buy a foreclosed home for less than its market value. After you have made repairs and renovations to the home, the value of the home will also increase. So you started with a home that you paid below market value for and then added more value on top of that. When you are ready to sell it is very likely you can make your money back and more!
How The Process Works
Buying a foreclosure, especially if you have black marks on your credit report, can be difficult, but not impossible. Here are several things you can do to improve the chances of buying a distressed home.
Talk to a mortgage broker. They can look at your credit report, give you advice, and explain to you which loans if any, you qualify for.
Look into an FHA loan. This type of loan is sometimes easier to get for people with bad credit. To qualify, you will have to provide information and statements that show the missed payments and the reasons behind it. Some situations can work in your favor. For example, if you had a medical emergency or a job loss, it could help you get approved for your loan. An important thing to note is that government-backed programs like FHA loans have specific qualifications. Buyers should make sure that foreclosed homes qualify for this program before going that route.
Give the loan office as much information as possible. Show them all nontraditional sources of credit, including your rental payment history. By doing so, it can indicate your ability to make consistent monthly housing payments.
Do your research. Foreclosure homes are often sold at auction in as-is condition. You likely won’t be able to get a professional inspection of the property, but you can ask the real estate agent or the seller just in case it is allowed. If you aren’t able to inspect the home, you can do more research into the home and the past owners. Check public records to see when the property last sold and how long the owners lived there. Do a drive-by of the house to see what condition is, at least from the outside. You can also talk to the neighbors to see if they know of any signs of squatters or recent break-ins. Do as much research as possible on the house beforehand and prepare for the home possibly being in bad shape.
These are obstacles you can navigate, as long as you are willing to put in the work. Poor credit and low income are not necessarily deal-breakers when purchasing a home. If you are financially ready to buy a home, buying a foreclosure can be a great investment.