How to Buy a House in Preforeclosure

Find the preforeclosure property to purchase. Contact local real estate companies and the local courthouse in an area where you intend to buy a home in preforeclosure. Another way to find these homes is by advertising in the local newspaper that you are willing to buy any home in any condition. These types of ads can provide several leads to potential homes in preforeclosure.

Identify the positive and negative aspects of the home. Every home will have something wrong with it. Your job is to determine if the problems in a home will prevent financing, cause future problems, or take away profit from a purchase. Things to look out for are liens on a property, major electric or plumbing problems, and the condition of a neighborhood.

Get financing. Pre-approval financing will make shopping for a preforeclosure home easier. Identify the price range you are interested in and use that to negotiate deals with sellers. The bank will be interested to know your plans with the home after a purchase. If you will be renting the home back to the seller or doing a contract for deed be sure the to explain the terms you expect to get from the seller while obtaining your pre-approval for financing. A contract for deed is when you, the buyer, does not keep the property and instead acts as a bank to the existing owner. The contract for deed offers terms for the home owner to make monthly payments and usually a balloon payment at the end of 3, 5, or 7 years. The terms of a contract for deed often have a higher interest rate but a lower monthly payment to help the resident family with monthly expenses. This time gives families the opportunity to get their finances back on track, at the end of the contract term most families are able to again secure bank financing on their home. The benefits to you as a buyer are that you gained the equity money from the home owner, and interest payments for the term of the loan.

Negotiate a deal to purchase from the seller. The seller is the current homeowner and you will need to know the remaining mortgage balance in order to make an informed offer. The seller will often be willing to lose equity they have in the home for the chance to avoid a foreclosure and possibly do a purchase contract with you to buy the home through a rental or lease program you can offer them. This loss of equity from the seller is what you need to make a good financial deal on your end. If the seller originally purchased the home for $200,000 but now only owes $150,000, the remaining $50,000 is the equity in the home. Although the seller may be trying to sell the home for $190,000 or $180,000 a preforeclosure investor can sometimes convince a seller to give up more of that equity in exchange for avoiding foreclosure.

Submit a purchase offer to the seller's mortgage company. Although a seller may have agreed to your price, the mortgage company has the final say. A mortgage company is often willing to take a loss on the remaining mortgage owed if they will be able to recoup most of their money. Keep this in mind when making an offer to the mortgage company. You do not need to offer to pay off the entire mortgage balance.

Finalize the purchase offer and contract with the seller. Since most preforeclosure homes remain in the hands of the seller it is important to have a clear set of guidelines for how the seller will pay you each month. The terms of this contract need to be reviewed by a real estate attorney and notarized. When everything is done, you have purchased a home at an extremely steep discount and will receive monthly income from the previous home owner.