As the world continues to struggle with the COVID-198 pandemic, most media outlets seem focused on a looming eviction crisis. Fewer journalists seem interested in a potential foreclosure surge in the US. The number of foreclosure and pre-foreclosure homes seems lower in 2021 than in 2020, but few programs exist to prevent a crisis from emerging.The good news is that knowing how to identify a pre-foreclosure home gives real estate investors opportunities to purchase properties at low prices. Before you spend any money on a property, take a few minutes to read this guide to pre-foreclosure home investing.
What Is a Pre-Foreclosure Home?
A home typically enters pre-foreclosure when the owner misses two mortgage payments. It’s a formal legal proceeding that happens at the beginning of the foreclosure process. If the property owner cannot meet their financial obligations to the lender, that person will default on the mortgage, giving the lender an opportunity to take possession of the home and sell it to recover their money.The steps between pre-foreclosure and foreclosure can take several months, especially when the homeowner takes steps to repay the debt or seeks protection from the courts.
Types of Pre-Foreclosure Home Sales
A home enters pre-foreclosure when the mortgage lender notifies the borrower that they have defaulted on the loan. At this point, many owners realize that they cannot catch up on the missed payments and penalties. Even if they can, they might not have enough income to continue paying the mortgage. When people realize this, they often decide that they would rather sell the property than lose it to the lender and damage their credit history.There are actually several types of pre-foreclosure home sales and related situations you should know about.
- Pre-Foreclosure sale –[/b] With a standard pre-foreclosure sale, you could purchase the property simply by paying the mortgage’s remaining balance. Spend some time negotiating with the owner and lender, though, to get the best possible deal.
- Short sale – [/b]Not all short sales are pre-foreclosure homes. Some of them are simply “underwater,” meaning that the home’s value is less than the remaining mortgage balance. In this situation, you will typically need to purchase the property with a single payment.
- Auction sale –[/b] If no one buys the property before foreclosure, it usually goes to an auction. The money raised by the auction goes toward repaying the mortgage, and the highest bidder takes possession of the house. Again, expect to pay a lump sum to the auctioneer.
- Bank-owned property sale –[/b] In the worst-case scenario for homeowners, the bank takes possession of the property and lists it for sale. Many banks have departments dedicated to taking possession and selling properties. The bank will likely expect a single payment instead of letting you finance the purchase.
Pre-Foreclosure Homes Could Present Opportunities to Real Estate Investors
It’s important to remember that you can get a great deal on a home at any point after the pre-foreclosure process begins. Ideally, you should purchase a pre-foreclosure home before it turns into a short sale, auction sale or bank-owned sale. With a pre-foreclosure, you don’t have nearly as much red tape to deal with. Purchases often happen quickly and smoothly. Plus, you get to help someone experiencing financial hardship get out of a bad situation (while collecting a property that could help you turn a profit).The amount of money that you can save buying a pre-foreclosure home depends on several factors, including location and how much money it costs to repay the mortgage. Keep in mind that you don’t necessarily have to pay the asking price. You should begin the negotiating process by offering about 20 percent under the breakeven point.If you need to borrow money to purchase the property, the interest rate will cut into your profits. Negotiate for a low rate so you can get a higher ROI and keep your payments affordable.
Pros and Cons of Buying Pre-Foreclosure Homes
Pros of Buying a Pre-Foreclosure Home
- You can get the property at a lower price, which leads to a high return on your investment.
- You have more power in the negotiating process.
- You can use a low-interest mortgage to help fund the purchase.
- You can view the properties in person before deciding whether you want to buy, an opportunity you lose once the home reaches the auction stage.
- You could earn money quickly by selling the home or renting it for long-term investment.
Cons of Buying a Pre-Foreclosure Home
- You might need to spend time and money rehabbing the property before you can rent or sell it.
- Unpaid taxes and liens could complicate the purchasing process.
- It can take a lot of research to find a good foreclosure investment opportunity.
Identify More Pre-Foreclosure Homes With ProspectNow
ProspectNow makes it much easier to find pre-foreclosure homes in your area. The database includes information about more than 100 million residential properties. The platform identifies which listings are pre-foreclosures, so you can focus on investment opportunities that interest you.Other benefits of becoming a ProspectNow member include:
- Accurate contact information for the actual property owner capable of making decisions (even when an organization lists its name as the owner).
- Predictive analytics that help you determine which residential properties will probably enter the pre-foreclosure, foreclosure and other stages of repossession.
- A frequently updated database that gives you an accurate view of your area’s real estate market.
Many independent investors and investment groups find that ProspectNow helps them earn higher ROIs while spending less time on lead generation. You don’t have to make any financial commitments to determine whether ProspectNow meets your needs, though. You can start a free trial to experience the platform. When the free trial ends, you can choose a monthly membership that doesn’t require any long-term commitments.Find more preforeclosure homes that make excellent investment opportunities by starting your free trial with ProspectNow.