As you tour the city with real estate agents and family members, you contemplate all the sleek granite countertops, cozy bedrooms and spacious backyards you have seen throughout the day. While you need a larger house for your growing family, your budget seems to favour the cramped quarters your current home provides.On average, Canada’s housing market is strong, which means positive things for the overall economy. On the other hand, this also means that homeowners sell their property at a higher price. But you may have a solution to find the larger home you want at the price you need: a pre-foreclosure.
On average, Canada’s housing market is strong, which means positive things for the overall economy. On the other hand, this also means that homeowners sell their property at a higher price. But you may have a solution to find the larger home you want at the price you need: a pre-foreclosure.
What is Foreclosure?
Before we discuss pre-foreclosure, you need to understand what a standard foreclosure means. This legal process begins when homeowners cannot keep up with their mortgage payments. In most cases, lenders do not act on the foreclosure until two or three months pass by with no imbursement.
If the homeowner simply had a temporary setback such as a layoff or medical expenses, he or she can usually pay small amounts to the mortgage lender for a period and then compensate later. However, insolvency or chronic financial hardship may force homeowners to default or become delinquent on their mortgage. This then forces lenders to recover their money by taking or selling property and any equity that comes along with it.
What is a Pre-Foreclosure Sale?
Pre-foreclosure sales occur when homeowners want to avoid foreclosure. Foreclosure can severely impact credit scores, so most people avoid them at all costs. Pre-foreclosures are sometimes called “short sales” because owners sell homes short (or less than) their current market value. Once they have an offer, they take that option to lenders. While creditors would obviously prefer to receive the entire value of their loan, many take the lower offer in order to regain some losses and avoid the foreclosure process.
What Are the Benefits of a Pre-Foreclosure Sale?
Benefits for the Seller
This sounds like a stressful situation, and it is, but it may also be the best solution for these homeowners in the long run. Without the missed payments and the threat of foreclosure hanging over them, they can save their credit and get out of a bad situation.
Benefits for the Buyer
Since homeowners price their pre-foreclosure homes to sell quickly, you and your family can usually find one at a much lower price than you would expect. Some lenders even offer special financing options on the mortgage to recover their original investment. Because the bank or other lenders have not taken the home, you deal with the owner and his or her real estate agent, as you would in a traditional sale.
Is a Pre-Foreclosure Worth It?
So far, we’ve spent a lot of time discussing pre-foreclosures benefits, but there are a few drawbacks you need to consider before pinning your hopes on a priced-to-sell house.
Home Improvement Considerations
When you tour most houses, you can expect homeowners to repair and maintain their property to make it more appealing. This encourages an offer, so many work hard to accommodate the home improvements prospective buyers want. But remember that pre-foreclosure homes are already priced to sell. In most instances, the low price negates other improvements, so the seller expects you to take the home “as is.” You will likely have to undertake beautification or maintenance projects on your own.
This also makes it essential that you conduct a home inspection. If your inspector finds significant problems with the house, think twice about proceeding. Expensive repairs could quickly turn this “good deal” into a major investment.
There is no standardized procedure for lenders to accommodate pre-foreclosure sales. That means that some creditors accept offers quickly while others might reject them. Unfortunately, waiting for lender approval can be a long, confusing, and frustrating process.
In addition to the back-and-forth you may face, rejection is a possibility. If lenders feel they can recoup their losses more effectively with a foreclosure, they may take that opportunity. In fact, the majority of lenders do not accept pre-foreclosure offers because they do not want less than the market price. Prepare yourself for rejection in case of that outcome.
Can You Buy a Pre-Foreclosure Sale on Your Own?
Whether you’re a skilled property investor or you’re shopping for your first home, do not take on a pre-foreclosure sale on your own. While you can take on the responsibility, pre-foreclosures tend to be a complicated and somewhat arduous process. Rely on experienced mortgage brokers to ensure it goes as smoothly as possible. Brokers will guide you through the process because they have walked this path before and know where the challenges lay.
Now that you know more about pre-foreclosures, contact The Mortgage Centre serving Paradise and all of Newfoundland and Labrador.