Financing Options for Buying a Pre-Foreclosure Home

If you are looking for a deal on a home, one of the best ways to get one is by buying a pre-foreclosure home. Typically, you’ll see pre-foreclosures homes listed as a ‘short sale.’ In other words, lenders are willing to take a smaller amount that the owner owes and consider the mortgage paid in full. This is one way the owner can avoid having a foreclosure on their credit report.

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Because the process is a little different, you should know what to expect when buying a home in pre-foreclosure or short sale.

The Steps to Take to Buy a Pre-Foreclosure Home

Buying a pre-foreclosure home can happen during many different times. If you are lucky enough to hear about a home that an owner is behind on the payments but the home isn’t listed for sale, you’ll get the best deal. If you wait until the home is listed as a short sale in the MLS, you may not get as large of a bargain as you hoped. Realtors have to bump the price up to cover all of the costs of selling the short sale.

If you happen to find out about a pre-foreclosure outside of the MLS, you’ll need to act fast with the following steps:

  • Talk to the seller – Remember, this is a sensitive subject as the seller is about to lose his/her home, be patient and kind.
  • Make an offer – It’s best if you can pay for the home in cash rather than get financing. This way your offer is fast and efficient. This can help you avoid the actual foreclosure process.
  • Do your due diligence – If the owner couldn’t keep up with his/her payments, chances are that the home’s maintenance isn’t kept up either. It’s a good idea to have an inspection done on the home to make sure it’s in good condition.

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If the home goes to short-sale, you’ll have a harder time buying the home. The good news with a short-sale is that you can use financing. The bad news is that you’ll have to deal with the current lender to get your offer approved. Short sales often take as long as six months to get to the closing table.

The biggest issue with buying a foreclosure is determining if there are any liens on the property. If there are liens, they will become your responsibility as they transfer with the property, not the owner. If there are liens on the property that you can’t afford or you just don’t want to pay, you’ll have to look for another property.

If you do decide to go for it, you’ll have to submit an official offer and proposal to the seller. Once the seller agrees to the amount, the seller’s lender must also agree. Using a real estate agent that is used to short sales will yield you the best results in this situation.

Know that when you buy a pre-foreclosure or short sale, you buy the home as is; the lender is not going to fix anything on the home. If you have to move fast on the sale, it may be best to pay for an inspection before you send in your offer. This way you know beyond a reasonable doubt that you want the home.

No matter what you choose to do, make sure you always have reputable professionals on your side. Hiring your own buyer’s agent and using a reputable real estate attorney will help you get the best results as your interests will be protected.

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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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