The pre-foreclosures process starts when the owner fails to make mortgage payments or breaches the mortgage contract.
As a result, they run the risk of having their home repossessed. In pre-foreclosure, the lender files a notice of default.
The notice is generally attached to the window or door of the home. It lets the borrower know they are behind on their mortgage payments.
The homeowner can choose to pay the outstanding balance during this pre-foreclosure period or sell the property.
However, some homeowners allow the property to be foreclosed for various reasons.
They might be underwater on their mortgage, the home is in disrepair or they just don’t want the home anymore.
Real estate investors prefer buying pre-foreclosures because they are not listed, so there’s less competition.
On top of that, these properties are sometimes sold below fair market value.
It’s a great way to invest if you know what you’re doing. You have the potential to get some amazing returns.
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Can you buy a pre-foreclosure home with an FHA Loan?
The short answer is yes. The FHA is insuring loans made by the approved lenders, and they are reimbursed in case there’s a default. But you can’t use the FHA financing as an investor.
They don’t allow you to use the loan for buying an investment property.
This is a loan support program for people that need to pay their debt and avoid foreclosure.
So yes, the FHA loans are only suitable for owner-occupants.
If you want to buy the Pre-Foreclosure home as an owner-occupant, you are allowed to do so.
One thing to consider is that if you are an owner-occupant and not an investor, you need to prove that to the FHA by moving in that property within 60 days of signing the documents.
In addition, the FHA will send an appraiser to inspect the property and share a report regarding its condition.
Property criteria for FHA home loan:
- The property must be used as the primary residence
- Must be appraised by an FHA- approved appraiser
- The property should protect the health and safety of the occupants
Pre-foreclosure vs foreclosure
As the name suggests, the Pre-Foreclosure period is within 90 days when a borrower is unable to pay one of the monthly payments.
Foreclosure is the process that starts after those 90 days. If you are interested in buying a foreclosure, the Pre-Foreclosure period is better because there are fewer competitors.
Sellers are also enticed to offer a lower price, which means this can be an amazing deal for any homebuyer.
Taking over payments with pre-foreclosure homes
Is it possible to take over the payments for a person that has a pre-foreclosure? Absolutely, legally you are allowed to do that.
In most cases, it will be a better decision to get your own mortgage rather than assuming the payments on an existing loan.
The lender could call the note due, so check with the lender before proceeding.
Also, you should work with an attorney that specializes in real estate to help you through the process.
If you want to avoid the complications of taking over payments you could pay cash for the property.
Conclusion
If you’re looking to buy a property, buying a pre-foreclosure is a very good idea, and it has the potential to offer you outstanding benefits and results.
The ability to have fewer competitors is amazing, and you also get to enjoy lower market prices.
That makes pre-foreclosures ideal for real estate investors. However, it’s important to check and see if it’s possible to take over the loan payments or if you need to pay the entire sum to buy the property.
In the end, Pre-Foreclosures offer great opportunities for real estate buyers, and you should definitely keep them in mind when you want to buy a new home.