I’m often asked the question – Can you really purchase a bank foreclosure for pennies on the dollar? The answer is yes and no.
The reason why it’s no is pretty obvious. Let’s assume you own a house for $200,000, would you sell it for $5,000 – $10,000, of course not. You might sell it for $160,000 – $170,000 to sell it quickly, which works in today’s market. Banks are the same, they’re not going to let their homes go for 5 – 10 cents on the dollar, when they can sell them for 70 – 80 cents on the dollar. This is all pretty much common sense.
I just told you that banks will not sell you a home for pennies on the dollar, then you might be asking who does? The answer is the government. The government is in control of many types of homes including:
1 – VA Foreclosures – You can purchase for $0 down using VA financing and you don’t have to be a veteran. This is America’s best kept secret.
2 – USDA Foreclosed Homes – $0 down using their financing.
3 – HUD Homes – As low as $100 down. (Only in certain states)
4 – Fannie Mae Homes – 3% down using their financing. Use a grant to make up the difference.
5 – Freddie Mac homes – 3 1/2% down using FHA financing. Use a grant to make up the difference.
The best type of government home is a HUD home. In the past the government has run special programs, usually when a house is on the market for more than 6 months. You can get huge bargains, it all depends on what state you’re in. With the other government homes you can get a great buy but not as good as with a HUD home.
When we say pennies on the dollar we mean between 10 -25 cents on the dollar. If you’re looking for anything under 10 cents on the dollar you have to look at tax sales, which is rare and complicated to do. (You have to foreclose on the person on the Deed of Record.)
One of the best programs the government has is called Best Offer. If you’re in a state where many people don’t know about this program, you can bid on a house and get it for 25 cents or lower on the dollar. Another program is called Neighbor Next Door, where HUD will take 50% off their list price (where the house is already discounted 10% – 30%) for certain occupations. Another one is the Dollar Program, but this is only for non-profit organizations.
The longer a house sits on the market, the better deal you can get. If HUD has many homes that have been on the market for over 6 months, and the more homes the better, then HUD will come out with a new incentive program to sell the homes quickly. And in today’s market where homes are just not selling as quickly as before, you definitely want to keep an eye on HUD for their opportunities.