Map of real estate foreclosures in the United States.
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Good time for foreclosures ... if you're brave
Real Estate Adviser by Steve McLinden • Bankrate.com
Dear Real Estate Adviser,
I am thinking of buying a foreclosure home to live in and possibly another for an investment some time in the next year or so. I am wondering: Is this a good time to look?
-- Danny
Dear Danny,
It might be the best time in years, which would mean it's perhaps the worst time for thousands of financially strapped U.S. homeowners struggling to hang onto their homes.
Many economic experts are predicting that mortgage delinquencies will rise up to 15 percent in 2006 among homeowners with higher-cost or "subprime" loans. About 19 percent of all U.S. home loans are now subprime in contrast to just 5 percent 10 years ago, according to the folks at Fitch Ratings, an investment-analysis firm. A lot of those homeowners with adjustable-rate subprime loans will see their loans reset at higher interest rates in the coming months and that will spell trouble.
Other factors expected to contribute to the default phenomenon are already-high consumer debt levels, rising energy costs and the advent of somewhat risky interest-only mortgages. So expect to see a lot of defaults on low-to-mid-level homes in 2006, although your opportunities will vary from market to market, of course.
That said, foreclosure buying is a very competitive game right now, with so many real estate gurus advocating the strategy in books and seminars, and on TV and the Internet. Just do a Web search under "foreclosure opportunities" and you'll see what I mean. Obviously, more and more buyers -- particularly investors -- are looking for an advantage in the game.
While there's not space here to go through all the strategies, buying a "pre-foreclosure" from a defaulting or financially strapped owner might be the best way to go on the consumer end. The county clerk's office keeps lists of such pre-foreclosures. Seek out titles where a "lis pendens" notice has been filed by the lender.
Before contacting and engaging in negotiations with the owners of these properties, make sure you are pre-qualified for a loan. You'll probably want to enlist a buyer's agent to make sure your best interests are represented and that you make the right offer -- which would ideally be at a below-market price.
Finding an agent with foreclosure experience would also be a plus.
The foreclosure-property auctions that you see advertised are usually the realm of more heavily bankrolled professional investors who stand ready to pay cash for a property.
If you are brave and well capitalized, you might try your hand at it. You might want to attend one or two for observation before acting. Whichever approach you try, don't give up if your first few efforts don't pan out. Eventually, your tenacity will pay off in substantial savings. Good luck and happy hunting.
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