First things first—what is foreclosure? Simply put, it is a legal process where a borrower loses the rights to their mortgaged property. A common reason for foreclosure is failure to pay on time. In some cases, it could also be caused by breaking other terms agreed upon when the mortgage was approved.
Lenders tend to sell foreclosed homes for a cheaper price because they want to make a sale as soon as possible. The money they will get from selling the property will then be used to pay off the rest of the mortgage plus other fees.
People take interest in foreclosed properties as these are usually offered at below-average market prices. Buying foreclosed houses is a good starting point for those who are looking for a good investment or planning to flip a house for more profit.
If you’re interested in buying a foreclosed home in Canada, here’s an overview of the process you’ll most likely be going through.
5 Steps to Buying a Foreclosed Home in Canada
Find a realtor
Before anything else, you should find yourself a trusted realtor. Look for someone who knows the local housing market well enough to make sure you’re investing in a foreclosed home that’s worth it.
Having a realtor to work with you will help you a lot. They will be able to assist you in finding the perfect home to buy. They will also be able to tell you the advantages and risks of the property. Lastly, they will be able to assess your current situation and find you the best deals in the market.
Set Your Budget
It is important to set your budget even before you start looking for a foreclosed home to buy. You should determine how much you can afford and how much you’re willing to invest.
Discuss with your realtor about your debt-to-income ratio. The higher ratio you have, the less likely you are to get approved for mortgages and loans.
Before making an offer on a foreclosed home, make sure you account for the additional payments that the property will incur. Keep in mind that there are also other expenses you might encounter when buying a foreclosed home.
Planning your budget ahead with your realtor will prepare you better for unexpected things that might happen in the process.
Get Preapproved for a Mortgage
The next step is to get preapproved for a mortgage. Doing so would increase your chances of getting a foreclosed house.
Make sure your credit score is looking good when you apply for a preapproval. This would basically make you reliable as a buyer.
Getting preapproved for a mortgage means that you’re less likely to default on payments. It also means that the lender sees you as someone who has the means to pay for the property for the whole duration of the mortgage.
This would also provide you with your ideal budget for a foreclosed home. If you get preapproved for a $300,000-mortgage, look for a foreclosed property that doesn’t go beyond that.
Make an Offer
After determining your budget, find a foreclosed property and make a competitive offer.
If you’re buying a foreclosed property at an auction, you might have to place an offer as soon as possible. People outbid each other most of the time, so make sure you place an offer that’s reasonable and competitive.
This doesn’t need to be rushed, though. Sometimes, foreclosed properties become cheaper as time goes by. You might get better deals if you wait it out for a while.
This is why it’s important to have a real estate agent by your side. They would know how much to offer and when to offer it so that you can have a bigger chance of securing a foreclosed property.
Schedule a Home Inspection
Once you’ve placed an offer for a house, you’ll have the chance to check it out. Bring your realtor and other professionals with you.
Remember that foreclosed homes are bought as is. It’s not the seller’s responsibility to make sure the house is in perfect condition.
Do a full inspection of the property to get an idea of how much you’re about to spend on repairs or renovations. Discuss this with your realtor to make sure you’re not incurring a loss when buying the property.
Are You Ready to Buy a Foreclosed Home?
Buying a foreclosed home isn’t that much different from buying a home, although it’s a little more complicated.
Foreclosed homes are mostly cheaper, but there are risks that come with them. You’ll have to pay for the land transfer tax which is 1–3% of the property. You’ll also have to go through a strict legal process before you can secure the property.
The key is preparing for these circumstances well. Hire a qualified real estate agent to be able to troubleshoot problems that you might encounter along the way.
If you find that you’re not quite ready to buy a foreclosed home in Canada, try investing in a smaller housing unit like a condo, for example. You might find it to be more convenient and favorable.
But if you’re ready to take on this challenge, here are the steps to buying a foreclosed home in Canada:
- Find a good realtor to help you navigate foreclosed properties. They will assist you through the whole process.
- Set a budget that works for you. Your debt-to-income ratio should be as low as possible.
- Apply for a mortgage pre approval. This increases your reliability as a buyer.
- Make a competitive offer at the right time. Consult with your realtor to have a greater chance of getting the property.
- Do a full inspection of the property. This will be an additional expense, but it will help you make sure you’re not incurring a loss in buying the property.
If you’re looking to buy a home in Airdrie, why not let us look for you? Just tell us your criteria and we’ll build out a customized portal with all the properties that match.
