10 Tips for Buying Distressed Properties


Have Cash on Hand

Money may not buy happiness, but it can get you a lot closer to buying your dream home at a great price, especially if your dream home happens to be a distressed home. Having a lot of cash at your disposal will make the process a lot smoother in several ways. For starters, the larger a down payment you can make on the home, the more seriously the lender will take your offer. A payment of 20 to 25 percent of the asking price is enough to convince the bank you're a safe bet [source: Gengler].

All those parts of the process that make distressed home sales unique tend to cost money. Remember that detailed home inspection you need to get? That costs about $350 [source: Gibbs]. And those extensive repairs that you might have to make? You would think you could just cover them with the loan you take out, but if the damage is too extensive, lenders may not even approve your loan. You might need to create an escrow account to cover the repairs, or even take out a second home improvement loan to convince your own lender that the house will be livable [source: Gibbs].

Finally, buying bank-owned properties puts a lot of the onus on the buyer to settle costs that the seller would cover in a normal sale. For example, you will usually need to pay closing costs and any real estate transfer taxes, and settle any liens on the home before the sale closes [source: McCrea].