Why You May Need Cash to Buy a Foreclosure

Why You May Need Cash to Buy a Foreclosure

You’ve heard about what a steal you can get on buying a foreclosure. The houses can sell for well below market value. However, buying a foreclosure isn’t always as easy as it sounds.

When you are buying a short sale or foreclosed property, you could be up against a lot of competition with your offer. After all, everyone wants to get a great deal on a property. When there are multiple offers, cash is king.

Here are a few things you need to know before getting started.

It’s all about supply and demand

Foreclosed properties hit the market with great price tags. Unfortunately they attract a lot of attention, which means that price tag might just be a starting point. These prices don’t just bring out buyers looking for their primary residence, it brings out real estate investors that have a fat bank account to help them purchase the house. When a bank receives multiple offers, they are going to choose the best option that they have.

What makes a good buyer?

You might think that the only thing banks are looking at is the bottom line – who made the highest offer? However, that’s not the way the system has been working. Banks are looking to close fast and easy when selling foreclosed properties. That means they are looking to sell them “as-is.†They will not provide inspections or home warranties, and many times will place a a stipulation like “only all-cash offers accepted†on the listing. Banks want was it going to be the closest thing to a guarantee when they accept an offer.

Following stricter guidelines

After the crash of the housing market, banks were forced to become stricter with their mortgage loans. To obtain a mortgage buyers are often required to get at least one appraisal and inspection of the home completed. Lenders trying to cover themselves in the future may have additional conditions that buyers have to complete in order to close on the mortgage. This is also the reason why these same lenders prefer to work with all-cash buyers.

One such example of these stricter guidelines applies to condominiums. In order to purchase a condo unit, the lender will require that the unit be located in a building where the majority of the units are occupied by the owner. This might not seem like a big deal, but in a heavy rental area, or a place that is experiencing a high foreclosure rate, it might be harder than you think. Many units end up being available only for cash buyers.

If you have cash to spend, you are in luck. Many times your all-cash offer will be accepted even if it is significantly lower than the other offers. However, not all deals will be for cash. If you are a traditional buyer that needs to obtain a mortgage remember that buying a house is not an overnight process. If you want to purchase a foreclosed property, work with agent that is experienced in the process and act fast when you find one that you like.