Some people mistakenly believe that the term pre-foreclosure is basically the same thing as foreclosure, that the only difference is that the bank hasn't quite gotten around to finishing the paperwork yet. The truth is that there is actually quite a bit of difference between a house that has been foreclosed on and one that in a state of pre-foreclosure. The reason why you need to understand the difference between pre-foreclosure and foreclosure is because there are lots of advantages to purchasing a pre-foreclosed house.
What is Pre-Foreclosure?
While it is true that the bank is in the process of taking the property back because the owner has been unable to keep up with the monthly payments, they have not yet actually done so. This means that the owner still has control of the property.
The Advantages of Buying a Home that is in Pre-Foreclosure
The most obvious reason to purchase a house that is in pre-foreclosure because the price is very reasonable. The property owner knows that the bank is about to step in and they would like to sell the house before it has an irreversible affect on their credit rating.
Because the bank has not officially taken over the property, you will be able to deal directly with the owner. This means that you will be able to negotiate more, once the bank has set a sale price they are not usually willing to negotiate with you.
When they know that the bank is about to foreclosure on the property, the owner is usually in a hurry to get out. Not only do they not want the foreclosure to appear in their credit history, they also know that if the bank steps in, they won't make any money at all. Selling the house before the bank officially forecloses means that owner might be able to keep a little of the sale money for themselves.
Another advantage is that there usually won't be a lot of people competing for the pre-foreclosed property.
Finding a Pre-Foreclosure
One of the reasons that more people don't purchase properties that are in a state of pre-foreclosure is because very few people know where to find them. You can usually find them by looking through the paper, checking online listings, and driving around looking seeking out for sale signs (especially ones that say for sale by owner). Another great way to find pre-foreclosed properties is to call lenders and ask if they have any suggestions.
