Over the past three years there have been a record number of realestate foreclosures in the U.S. This has lead to a slowdown in the housing market as values fluctuate and new buyers wait on the sidelines for signs of stability. But for those intrepid souls who invest in real estate, now might be the perfect time to attend a home auction.
In a mercurial market, there is no question that buying foreclosed homes a risky endeavor. However, it really does depend who you’re buying from and when. In this article we are going to discuss bank foreclosed homes and government homes. We will begin when the crisis did, with the banks.
Shortly after the global housing bubble popped in 2006, Banks began to notice a sudden slowdown in payments. Specifically, homeowners were not turning in their monthly mortgage payments. Now, there are many theories that have attempted to explain the overwhelming number of foreclosures that were to follow.
The first and most obvious is that banks lent a lot of money to people that couldn’t afford to pay them back. As a result, the banks had to take possession of their homes. These repo homes were then made available for sale to the public at auctions. And since the banks desperately needed to recoup some of the funds that they had lost on mortgages, they were and still are willing to offer realestate foreclosures at discount prices.
Next we have government homes, which are sold by a department known as HUD, which stands for Housing and Urban Development. It is the responsibility of HUD to insure the loans that banks make to new homeowners. And when folks default on these mortgages, HUD steps in and settles the remaining balance with the banks. Then HUD takes possession of the home and attempts to sell it on the open market.
More often than not, HUD will hire a private broker who is charged with selling the home in his community. And while HUD does provide a vital service by protecting and insuring the banks, they often lose money on the deal. It’s a good thing they’re government funded.
What is the best way to purchase realestate foreclosures? Both options have their strengths and weaknesses. Generally speaking, there are slightly better deals to be found at bank auctions. On average, realestate foreclosures sell at a ten to fifteen percent market discount at auctions. However, the risk of damaged properties and costly repairs is slightly higher at auctions because there is often more secrecy.
One obvious advantage of buying a HUD home is that the department usually covers all closing costs. This simple courtesy can save buyers thousands of dollars in fees. Not to mention the fact that HUD realestate foreclosures offer similar discounts with less frustration.