Buying foreclosed homes in California is a great deal for those looking for a discount on a house. How to buy foreclosed homes in California? Let’s read this post with Hanfincal to know the answer.
1. What Is a Foreclosure?
Foreclosure begins when a borrower doesn’t pay back their mortgage. The lender will take the property and put it up for sale, expecting to turn a profit and get back the rest of the borrower’s outstanding balance.
The laws about foreclosure differ from state to state. In California, foreclosed homes can usually take over 200 days; therefore, the process is not easy or quick.
Most foreclosed homes in California are non-judicial, implying they don’t go through the court system. The state uses some protections for house owners who have had their houses foreclosed on, consisting of the ability to reclaim ownership of the house and pay their debts more than five days before the house is sold. This can make things uneasy for purchasers seeking this kind of home.
2. Stages of a Foreclosure
How to buy a foreclosed home in California? It relies on which part of the process it is at present in. Here are three stages of foreclosure you should know:
Stage 1. Pre-foreclosure
In this stage, the lender has informed the house owner that their house will be foreclosed if they don’t pay their loan. This often occurs after the house owner hasn’t paid for three months or more, and it takes them three months to make their loan current. If they can’t do this but want to avoid foreclosure, which could ruin their credit for years, they have two choices:
- Sell home’s equity: It is feasible if the property’s sale price is enough to cover the house owner’s closing costs and mortgage without paying out-of-pocket.
- Do a short sale: If their home is worth less than the outstanding loan, the house owner needs to ask for their lender’s acceptance to do a short deal. This short sale lets them sell the property at market value and use the proceeds to pay back the lender, who will forgive the remaining balance. If the homeowner took steps to pay back the loan, a short sale would still damage their credit score.
Property investors want to purchase pre-foreclosure houses because they can negotiate a lower price with the house owner. Besides, you can inspect the property before buying it.
Stage 2. Foreclosure Auction
If the delinquent house owner can’t pay back their lender or sell their property, the lender sets it up for auction. Some property investors have sought good deals at foreclosure auctions. However, the process is still risky because you are unable to check the house or inspect title problems in advance. If you are not aware, you can end up purchasing a house that needs major renovations and repairs that will eat up your budget.
If this was not risky enough, the state authority purchased a foreclosed house in California more difficult for property investors. Homes for Homeowners or SB 1079, not corporations, took influence on January 1st, 2021. Under this law, local governments, owner-occupants, and housing nonprofits have 45 days to outbid or match the offer if the investor wins a bid for a citizens’ house.
Stage 3. Bank-Owned or Real Estate Owned (REO) Properties
If the lender fails to sell the foreclosed home at auction, they will take it, sell it conventionally and evict the inhabitants. They’ll also fix up the region, remove the title, and follow the state rules when selling. The house may have a higher price than the previous two stages; however, you can check and appraise the property in advance by making an offer.
Depending on the property’s stage, these are the different methods to purchase a foreclosure in California. When buying a house in pre-foreclosure may take you a good deal, you can still keep noticing public auctions and REO listings in case you look for a suitable home.
3. 7 Steps on How To Buy Foreclosed Homes In California (CA)
How to buy a foreclosed home California? How to buy foreclosed homes in CA? Following the seven steps below to own your foreclosed home in this state.
Step 1. Get Pre-approved for a Mortgage
Taking pre-qualified or pre-approved for a mortgage implies submitting your financial information to a lender. If you’re pre-approved, they provide a pre-approval letter indicating that they could provide you with a home loan up to a specific amount. You can also use this letter as a clue that you can manage to pay the pre-approved amount, which would make you separate from other house buyers.
You should notice that if you purchase a foreclosure at an auction, you must pay in cash. If you don’t have enough cash to pay for a foreclosed house, consider protecting financing through other ways, such as getting a home equity line of credit (HELOC), borrowing from family and friends, or taking funds from your IRA or 401k.
Step 2. Hire a Real Estate Agent (Optional)
If you have purchased foreclosed houses for the first time, you will find the help of a real estate agent. They can:
- Assist you in drafting an offer letter.
- Tell you about local rules that you should notice.
- Negotiate on your behalf.
- Answer all questions and concerns about the process.
- Notify you of any problems to look out for.
You could use this chance to learn more about purchasing foreclosures; therefore, you could select to do it by yourself next time.
Step 3. Search for Foreclosed Homes
It takes much time and patience to seek a foreclosed property for sale that is worth investing in, and you need to know where to find it. Luckily, there are some ways you can do this, such as:
- Search engines: When typing “foreclosure listings nearby” on the search engine of choice, you can see several websites that feature such properties.
- Your real estate agent: If you make a decision to hire one, they can find your party and let you know of any foreclosed listings that meet your standard.
- Real estate websites: Many real estate websites feature homes up, pre-foreclosed houses for auction, and REO properties, so you can give it a shot!
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Step 4. Submit Offers or Make Your Bid
You will need patience here because you might write many offers before a seller receives yours. It is the same with public auctions; you may have to outbid other interested purchasers to win the property you would want. While bidding on a home, you need to set a maximum purchase price initially so that you don’t spend too much just because you got too competitive.
Some tips for bidders: Investigate how long a property has been vacant before making a decision on your maximum bid price. If it has been unoccupied for a long time compared to the other homes, prepare a low bid and leave more room for the renovation. However, if a seller releases a house on the market, you are ready to offer the highest amount you’re willing to pay.
Step 5. Secure Your Property
While purchasing a foreclosure, many times, you are buying it as-is. You couldn’t negotiate for the seller to make repairs to purchasing their home. When bidding on a property, you are not allowed to check before the auction.
Once the seller has accepted your bid or offer, you can get the house checked, run a title search, and purchase title insurance. If feasible, get these done prior to exchanging money. Some foreclosures include significant damage to the building, the land, or the foundation. You also desire the title to be obvious of encumbrances or liens. The title insurance secures your ownership rights to the property.
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Step 6. Get the Home Appraised
A house appraisal is an unbiased, independent licensed professional that evaluates a property’s market value. They depend on comparable sales in the market, neighborhood, and the property’s condition.
This is often asked of conventional mortgage lenders before they accept the loan. However, if you took out a non-conventional loan or paid in cash, getting the new property appraised would let you know if you could refinance it to fund the renovation or pay your loan.
Step 7. Close the Sale
When you have protected the property and are happy with it, it’s time to pay off the total amount of the required price and sign the closing document. If you win a bid at an auction, you must pay immediately or the following business day; therefore, you may have to do this first prior to proceeding to steps 5 and 6. The inhabitant of your property has several days to vacate the home.
Don’t do anything to the property until you own the sale certificate, title insurance, and property title. Due to SB 1079, someone may outbid or match your offer within 45 days.
How to buy foreclosed homes in California? You can refer to the simple seven steps above to purchase a foreclosed house as you want. Besides borrowing money from friends and family, you can consider some financial assistance to own foreclosure. Hanfincal hopes this blog post helps you understand the process of buying a foreclosed home in California.
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