Buying a home of any kind requires a sizable down payment, excellent credit to qualify for a mortgage and additional cash for expenses such as closing costs. Consumers should be aware that when purchasing a foreclosed home, they still need to have assets and credit available to fund the purchase.
What is a foreclosure?
When a homeowner defaults on their mortgage payment for a substantial period of time, the mortgage holder may legally evict the owner and claim ownership of the property. This process is called foreclosure.
Banks would rather not have end up with a foreclosed property, since they actually want the money due from the mortgage. However, since the home was collateral, banks will seize the property to mitigate their losses and then sell the home to a new party.
How much do foreclosed homes cost?
The actual dollar amount required for purchasing a foreclosed home varies of course of the amount of the property. However, banks are generally anxious to sell off foreclosures and those with good credit (FICO above 720) may get a loan for the full price of the foreclosed home, plus additional money for closing costs.
By law, mortgage brokers are now required to provide a clear cut GFE (good faith estimate) to consumers regarding the estimated closing costs.
Those closing costs vary based on the value of the property and the terms of the loan but on average those fees can range anywhere from $3000-$12,000. It is important to note, that because the bank may be anxious to sell the foreclosed property, the may be more than willing to offset some of the closing costs to sweeten the deal for the buyer.
So how much do I need to buy one of these homes?
If you are going to buy a foreclosed home and are wondering how much money you will need, you need to first figure out how much money is in your overall budget. You should estimate about 20% for a down-payment (as many banks are now upping the minimum investment), review your GFE and have more money on hand then initially expected.
