According to RealtyTrac, the average foreclosed property sold for 25% under market value last year. Given these deep discounts and how desperate lenders are, now is a better time than ever to purchase a foreclosed home. Additionally, Arizona is part of the Sun Belt, an area of the country that was hit particularly hard by foreclosures. As a result, buyers can easily find excellent deals on properties in cities like Phoenix, Tucson, Flagstaff, Scottsdale, and others. Though Arizona foreclosure properties are promising investments, potential buyers must remember that purchasing a distressed house is usually much riskier and more complicated than buying a home without a troubled financial past. To help you prepare for foreclosure buying, we’ve compiled a list of things that every buyer should know going into the process.
- Choosing Arizona foreclosure properties. The Internet is your best resource when it comes to finding foreclosure properties in Phoenix and other Arizona cities. For a small monthly fee, you can subscribe to websites like foreclosure.com and RealtyTrac that list thousands of homes in foreclosure. If you’re hunting for the deepest discounts, focus your search on areas with the biggest number of distressed homes. Lenders with large exposure to these troubled areas are the most likely to give you unbeatable deals in order to minimize their potentially colossal losses. Before you buy in one of these areas, make sure you research the quality of the neighborhood. Home values in areas with poor schools, high unemployment rates, and high crime rates will not recover as quickly as properties in better neighborhoods.
- Stay away from auctions. With foreclosure properties in Arizona, buyers have three purchasing avenues that they can pursue. The first way is through pre-foreclosure, where the buyer purchases the property directly from the current homeowner before the lender forecloses. Secondly, buyers can purchase a foreclosure property from a real estate company, also known as the REO (real-estate owned) property method. Lastly, buyers can purchase a foreclosed Arizona home at an auction, which is the riskiest of all three buying methods. The risk of court auctions stems from the fact that bidders are buying a home that they have not seen and that has not been inspected. Buyers have no way of knowing what repairs the home may need or how much they will cost. Additionally, many auctioned homes owe back taxes, an obligation that transfers to you once you purchase the property. Finally, bidders typically must also pay cash for homes bought at auction.
- Research property values. A foreclosure property isn’t always an incredible deal. Because of rapidly declining home values, many Arizona homeowners in foreclosure owe more on their mortgage loans than their homes are worth. As a result, the foreclosure buyer could be at risk for assuming a substantially overpriced loan. To avoid this, make sure you research property values for the area. Solid home-value research will help you pick out the best foreclosure deals. If your ideal foreclosure property ends up having an overpriced loan, talk to the lender about the possibility of a short sale. With a short sale, the lender accepts less money for the property than the outstanding balance of the existing mortgage. Usually, it is in the lender’s best interest to accept a short sale rather than have the foreclosed home languish in its books for an extended period.
- Seek out pre-approval. Pre-approval is always a wise option when purchasing a home, but it is even more important when buying foreclosure properties in Arizona. Even for borrowers with flawless credit, some Phoenix area lenders will not issue loans for distressed homes. Other banks might only issue a mortgage if the foreclosed home is in good condition. If you find a lender that is willing to give you a loan for a foreclosure property, ask your loan officer what criteria the property must meet to be eligible for a mortgage. Most lenders will allow cosmetic, superficial repairs, but they tend to frown upon serious issues like termites.
- Have an inspection done. All home buyers need to have the property inspected even if it is new. Inspections are particularly critical when purchasing foreclosure homes in Arizona. When homeowners fall behind on their payments, they tend to put off or ignore the maintenance needs of the home. In addition, once a lender seizes a property, the home usually sits vacant for a fairly long time and falls into even worse condition. In some cases, homeowners who are losing their homes might even become so furious that they deliberately damage the property before they move out. Clearly, an inspection is imperative during the foreclosure buying process. Without an inspection, you cannot approximate the value of the repairs the home needs or inform your lender of the property’s actual condition.