Foreclosures in the country are on the rise; in fact, last year alone the national foreclosure rate was over 2 million homes, up 42% from the previous year. Many people are finding that they can get great deals on foreclosed homes, either to live in themselves or to use as investment properties.

With over 2 million homes going into foreclosures yearly and the rate rising, finding a foreclosed property isn’t necessarily a problem; however, getting a great deal on a foreclosed home can be a little more difficult. Many people expect to get a foreclosed home well under market value. Sometimes this is possible, but many times people will find that they are paying right at market value.

Why are foreclosed homes sold so cheaply?
A home goes into foreclosure when the owner can no longer afford to make the monthly payments, so the lender (bank) repossesses the home and sells it in order to make back what is owed on it. Foreclosures are often found at great prices (sometimes up to 50% below value, in extreme cases) regardless of whether you are buying from the lender and the home has already been foreclosed or you are buying from the owner. If you are purchasing from the owner, chances are they are not in foreclosure yet but are willing to unload the home as quickly as possible, even if it means getting much less than it is worth. An lender simply wants to get the money owed to them back, so they are willing to sell the home sometimes for what is owed and no more.

It is important to keep realistic expectations in mind, however. There are other reasons the homes are sold so cheaply, and buyers should be aware. It is often unrealistic to expect a home in pristine condition. Often, the homeowners have been in financial duress, so the home may be in need of repairs, sometimes major.

Good deals can also be found on foreclosed homes when they go to auction, but a growing number of people interested in foreclosed homes has made competition at auctions steep, and there are often many bidders vying for the same property, which can also drive up prices.

Finding great deals on foreclosed homes

Despite this, there are still good deals to be found on foreclosed homes. The following are some tips on how to get great deals on foreclosed homes.

Contact lenders or look at their websites.

Most people know you can look for foreclosures on the internet, and this is often the first place people start. However, many times banks will list their foreclosed properties for sale on the internet, allowing you to search by state if it is a national bank. Information also includes the price of the home, its market value, the agent’s name and contact information, and sometimes photographs. This is a good place to look for great deals, since not many people know you can find foreclosed homes on a bank’s website, but it should not be the only place you look, as the listings are often limited. Some real estate professionals also recommend you look on websites such as Fannie Mae, who purchases mortgages from banks and may also list foreclosures.

Check government websites

You can also find great deals on foreclosed homes by checking the websites of government agencies such as the Department of Housing and Urban Development and Fannie Mae. These organizations advertise homes that are undergoing foreclosure on their websites, allowing you to search by state then make an offer to the agent. Keep in mind that these homes are sold as is and may be in need of repairs.

Contact the lender before foreclosure.

If you are experienced with investing in foreclosures, you may find that you can go to the homeowner directly before the home has actually been foreclosed on. A foreclosure can drop a credit score over 300 points and remain on your credit score for up to seven years. Many people are desperate to unload their homes and will accept offers that are much lower than market value just to prevent the foreclosure from going through and appearing on the credit. This is particularly true in a failing housing market, when selling homes is difficult. With a limited amount of time and few offers, the homeowner will typically be open to accepting a lower offer, which translates to a great deal for you.

Many real estate professionals experienced with foreclosures will recommend that this action be taken by people who are familiar with the foreclosure process because in this case, timing is very important.

Check out public records.

You can find good deals on foreclosed homes, as well as auction dates, by looking in the newspaper or visiting county offices. Once a home goes into formal foreclosure, the lender is required to file a public record of default with the courts. This information then becomes public record, and you can search these listings through the newspaper, where notices and auctions of foreclosures are published, or through online services. You can also visit the county office directly, as they often have resources for locating foreclosed properties.

Go to auction

It used to be that foreclosure auctions were the best place to find great deals on homes, and it was not uncommon for the properties to be auctioned off for up to 50 percent of their market value. But as foreclosure investing increases, foreclosure auctions are no longer a well-kept secret. More people at auction means higher sale prices, but experts still say auctions are worth visiting, as you can expect around 10 to 20 percent off market value.

If you plan on purchasing a foreclosed home via auction, make sure you set ground rules and know exactly how much you want to spend, and then stick to it. This will help ensure you get a great deal. Otherwise, you may get caught up in bidding and overspend, resulting in a deal that isn’t much.

Be aware also that more often than not, you will be bidding on a home as-is. This means if you win, you will be purchasing a home that may have numerous problems you know nothing about and will end up having to put more money than expected towards it to make it habitable or sellable.

Consider a real estate agent

A real estate agent will take commission fees, but you can still get a great deal on foreclosed properties because they have access to information and properties you won’t be able to find just be searching the internet. Find an agent who specializes in foreclosures. You can do this by having your agent do a search of REO (real estate owned, also sometimes referred to as lender owned) properties. Then if you notice one agent’s name coming on multiple listings, consider contacting that agent, as they may have a leg up in the market already. You can also do these searches yourself online, and then contact that agent directly.

Foreclosure listing services

A foreclosure listing service is often well worth the monthly investment, particularly for people who are too busy to put the proper research into finding a foreclosed home. Expect to pay about $50 a month, but you will also have access to around 75% of the counties in the nation. Many sites list not only foreclosures, but those nearing foreclosure as well. Sites like these can also facilitate the process by allowing you to make offers online and getting you in touch with realtors and owners. Property values in the area are also listed, so you can tell whether or not you are getting a good deal based on surrounding areas.

One you find the deal…

If you think you have found a great deal on a foreclosed property, make sure you are prepared by having fully researched the foreclosure process so you know exactly what to expect and what (and how) you will be paying for your new home. This includes knowing whether or not you can inspect the home before you buy it, what the values of other homes in the area are, needed repairs, and so forth.

In addition, you should also know the laws that are specific for each state, as foreclosure laws vary from state to state. This can include when notices are to be posted, and whether the home is owner occupied when you purchase it. If this is the case, you as the homeowner will be responsible for having the tenant vacate the premises, which many people would prefer to avoid.

There are great deals to be found on foreclosed homes if you do your research and familiarize yourself with the foreclosure process.