With foreclosures on the rise in the Houston, Texas real estate market, buyers might feel like they can get a better deal, but think again.  These properties tend to be neglected or were formal rental properties that landlords cannot handle anymore, and since most first-time home-buyers are the ones on the quest for the most home for their money, make sure you are being smart when looking at foreclosures.  The following are questions that buyers in any market, booming or slow, should be asking before making an offer on a property in foreclosure.

Is now a good time to buy a foreclosure?

This is a very common question from both real estate professionals and prospective buyers. Obviously, because local market conditions vary, the answer is different from market to market. But there are questions that buyers in any market should be asking before they make an offer on a property in foreclosure.

What’s the first step buyers need to take?

You need to be pre-approved for a loan before you start shopping for a foreclosure. If you’re thinking of buying a foreclosure as an investment or second home, you need to understand that financing the home will be more difficult and more expensive than financing a primary residence. Lenders typically charge higher interest rates and require a larger down payment for investment properties or second homes.

How can you tell a bad foreclosure from a good one?

Certainly there are great deals in many markets for both investors and buyers looking for a primary residence. But making a sound deal can be tricky. You need to be wary of unpaid liens, including mortgage debt, taxes, construction loans, home equity lines of credit, and possibly a second or third mortgage. Any or all of these financial obligations could become your responsibility when you purchase a property in foreclosure; the term ‘as-is’ can go a lot further than the condition of the house! Unless the property goes through a foreclosure auction and becomes a bank-owned REO, the outstanding foreclosure liens and fees could be simply transferred to the new owner.

If I’m a qualifying borrower, can I appeal to banks for better loan terms?

Lenders are drowning in defaults—particularly in hard-hit real estate markets such as Arizona, California, Florida, Michigan, Nevada, and Ohio—so they may be motivated to cut a deal. If you have a good credit score, many banks will offer a below-market-rate loan on a bank-owned home.

What are the costs of buying a foreclosure? 

It takes money to make money! The best opportunities are for buyers with cash. If you are planning to rent out the property or even resell it for a quick profit, make sure you consider the carrying costs, including sales commissions, marketing costs, vacancies, taxes, insurance, and maintenance costs. Once you’ve calculated all the expenses, add on another 10 percent to 15 percent. If you don’t build in a "surprise fund," you might be the next foreclosure statistic.

How does choice of neighborhood affect foreclosure investments?

Buyers looking for a good investment in their future should generally avoid neighborhoods overrun with foreclosures, particularly newer subdivisions in overbuilt exurban areas. Investors will be tempted to buy foreclosures in these areas because they offer the steepest discounts—but they also carry the most risk of further depreciation. Look in well established neighborhoods with good schools and transportation.

Still puzzled with all of this?  We can help!  The Puryear Team is Certified Distressed Property Experts, so we can answer questions for both buyers and sellers! Contact us, and we will be happy to sit down and talk about your needs, the current Houston Texas real estate market and the $8,000 Government Tax Credit for new and repeat home-buyers.