Money Rehab with Nicole Lapin - Foreclosed Homes: Opportunity or Nightmare?

Episode Date: December 23, 2023

Originally aired 2/2/23 Nicole breaks down everything you need to know about buying a foreclosed home; like, whether it's a good move for you, how to find the best opportunities, and how to beat competing offers. As promised, here are the goods: https://homepath.fanniemae.com/ https://www.homesteps.com/ https://www.rockethomes.com/ https://www.hud.gov/topics/homes_for_sale

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I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. The housing market is a tough one. This is not breaking news. There is a limited amount of inventory, mortgage rates are peaking, and housing prices have stayed stubbornly high. However, if you've got a little time, a little savvy, and some cash on hand, there's a trick that could save you money on a house by the end of the year. This trick will vibe with those who like hunting for special finds at thrift stores and buying used fixed or upper cars. The rest of you can use it too, of course, but it really works best if you love a deal and enjoy a challenge. I'm of course talking about foreclosed homes,

properties that mortgage lenders have reclaimed because the buyer was no longer able to make mortgage payments. During the pandemic, there was a moratorium on home foreclosures because, you know, it was a pandemic. But when those restrictions on foreclosures ended, many speculated that the market would be flooded by foreclosures. But that flood never happened. If anything, it was more of like a trickle. Because the housing market has been so hot, if people were struggling to make their payments, they could easily sell their house quickly, usually for more than they paid for it, which kept people out of foreclosure. But now, slowly, foreclosed homes are starting to get listed. Last year, foreclosures were up 187%, which sounds like a lot, right?

But that's after two years of abnormally low rates of foreclosure, and the numbers are still below where they were in 2019. Foreclosure rates aren't expected to rise until the end of this year. So you're probably saying, great, Lapid, why are you telling me this now? The answer is, if you're interested, you should start preparing today. Buying a foreclosed home isn't like buying a home the traditional way. Yet it is easier than it used to be when you actually had to go to the sheriff's office and sift through legal filings to find one. That is a true story. But you still need to be willing to do research, get financing, find just the right house, and be willing to wait while the sale goes through.

So where do you find these properties? You may be tempted to surf Zillow or Redfin or any of the big companies you use to search for your housing board. But to really track down a deal, a legit deal, start with a mortgage company's listing of foreclosed homes. Because unlike a traditional home purchase, you aren't buying from the owner. Here, you're buying from the lender. So it's the first place to look. Everyone from Fannie Mae and Freddie Mac to Rocket Mortgage to the federal government has their own listings of foreclosed homes. All of those resources are linked in the show notes. You're welcome. Once you know where

to look and get a feel of what's available in your area, you need to assemble your team so that when you log on and see that just right for you home listed, you're ready to spring into action. You want to connect with a real estate agent who's familiar with buying foreclosed homes specifically, and you want to get pre-approved for a loan. These are deals, guys, in a tight housing market. You're not just competing with the family down the block who's kind of been thinking about moving into a house with three bedrooms. You are competing against professional investors and even large corporations who are going to spring into action with cash offers. If you want to land that deal, you have to be ready to go. That means being pre-approved for

financing and working with someone who really knows the market. Now is also the time to really dial into what you're actually capable of doing. Are you super handy around the house? Do you know what a load-bearing wall is and how to replace a toilet? Because if you do, cool! But if you don't, you're going to need to hire help. And that help can get really expensive. There is a special kind of federal mortgage for this called a 203k loan, which covers the cost of the house and repairs up to $35,000. This is a great choice if you're

buying a fixer-upper, but it also comes with some drawbacks, including the length of the application process. So again, being patient here is key. But let's step on back. A lot of people think buying a foreclosed home is a way to do a real estate equivalent of buying low and selling high. You buy a cheap house, you fix her up, and then you sell it for two times what you bought it for. But turning a profit is not guaranteed, especially if you end up in a situation where you need to shell out a lot of money for a renovation. And then once you start taking out all the loans, is it worth it? Only you can decide. But just to recap, if you have the time, money, and energy to tackle challenges that come

with a foreclosed home, you might have a chance at the end of 2023 when more foreclosed homes come on the market. If this kind of bargain hunting isn't for you, there are still things you can do to get to a better place to buy a house right now. Even in this market, you can get your finances in order, you can raise your credit score, build a down payment nest egg, and figure out what kind of mortgage fits you and your needs. For today's tip, you can take straight to the bank. When the housing market is hot, the way it's been for years now, a lot of people become real estate agents, but not all of them have the experience or education it takes to survive in this cutthroat market.

So when you're looking for a real estate agent, ask them how long they've been in business and ask them how many deals they close a year. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video

content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.