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Explore the process of financing a foreclosed property purchase
Foreclosed homes are usually owned by a bank or other financial institution after the previous homeowner was unable to meet their mortgage payments. The proceeds from the sale of a foreclosed property are used to pay the outstanding mortgage loan.
- Conditions of foreclosed properties vary widely – and some sales are on an "as-is" basis with limited ability to view the property or conduct an inspection prior to making an offer or closing
- A foreclosed property may be sold at auction or by the financial institution that holds the mortgage
- These transactions are sometimes referred to as REO (Real Estate Owned)
A short sale can be an alternative to foreclosure for a homeowner – especially in instances where the homeowner's mortgage is higher than the home's current value. In a short sale, the lender agrees to accept less money than is owed following the sale of the house.
- As a potential buyer, a short sale transaction will usually be like any other residential home purchase
- Many real estate professionals work with short sales
Note: Due to seller considerations, closing times for foreclosures or short sales may take longer than conventional home sales; your loan officer will provide an update on timing.
How you finance the purchase of a foreclosed property can vary. For properties that are being sold at auction, you may be required to provide some or all of the purchase price in cash. Factors that can influence a foreclosure purchase:
- You may have to make a cash deposit at a foreclosure auction – and this deposit may not be refunded if you are unable to secure financing for the property
- The buyer of a foreclosed property may be required to pay any outstanding liens, including property taxes
- The lender will require an appraisal to help determine your loan amount
If the foreclosed property appraises for less than your offer price, you may need to use out-of-pocket cash to cover the difference in order to secure your mortgage. Or, you can withdraw your offer – and potentially lose your deposit.
If the foreclosed property is in a different state, keep in mind that your lender must be authorized to lend in that state. TD Bank operates in 15 states from Maine to Florida. Find a TD Bank near your property
- Documentation and closing procedures may vary from state-to-state, so work closely with your loan officer, real estate professional and closing agent
- Be prepared to be present for both your property inspection and your closing
- If you can't attend your property inspection, make sure you get the report and ask the inspector any questions
- If you can't attend your closing, your loan officer can help you identify who can legally represent you