A foreclosure is a process by which a homeowner’s right to their property is relinquished because they failed to pay their mortgage. If the homeowners cannot pay off the debt, the home will become an asset of the bank. Foreclosed properties are more common than people think and can lead to one person’s loss becoming another’s gain. Foreclosures can come with risks as well as benefits. The multitude of these risks and benefits can often intimidate new homebuyers from sealing the deal. Before buying a foreclosure property, be sure to examine the advantages and disadvantages that coincide with making this type of deal and determine if it is something you would want to take part in.
Pros of Buying a Foreclosed Property
There are many different types of foreclosure homes. A property that is in pre-foreclosure is in danger of becoming a foreclosure but isn’t owned by the bank yet. People often look into buying pre-foreclosure homes because the homeowner wants to sell their home quickly before going into foreclosure. This puts the buyer at an advantage and leaves room for negotiation.
A buyer looking to purchase a pre-foreclosed property can do all standard home inspections and research title during the due diligence/contingency period.
Foreclosures don’t always have to be run-down, unattractive homes. Luxury homes, starter homes, and homes that are only in need of a few minor repairs can be listed at foreclosure. A foreclosed home can require a lot of your time and energy or can be ready to be moved into the day you purchase it.
Once the bank owns a foreclosed property, they will often offer the property at a discounted price. The longer the bank owns the foreclosed property, the more they have to pay in fees, taxes and maintenance, so they usually want to sell it as quickly as possible.
Buying a foreclosed home is financially advantageous. Since the home buyer purchased the house at a price below the market rate, when and if it comes time to sell, the investment made could return larger and better.
Cons of Buying a Foreclosed Property
The disadvantages of buying a foreclosed home can sometimes outweigh the advantage of a financial return. The downsides depend solely on the current stage of the foreclosure and will affect your decision to purchase the foreclosed property or decide against it.
Although many pre-foreclosed homes are discounted, some are not due to the current homeowner pricing the home higher than it is worth in order to pay off the remaining mortgage.
Additionally, if a pre-foreclosure or foreclosure is significantly discounted, the potential buyer will face serious competition from other buyers which will make the experience much more difficult for all parties involved.
Foreclosed homes are often inhabitable and require many repairs. Remember, homes become foreclosed because the homeowner cannot pay their mortgage, which suggests that they also couldn’t afford basic repairs to keep the home in prime condition. Current inhabitants may be problematic as well and refuse to leave the vicinity. Legal action may occur, which may result in vandalism on the home you want to purchase.
Foreclosed properties can also have liens attached to them. You may have to pay costly old debts associated with the property. It’s vital to research every detail of a foreclosed property before looking into purchasing one.
Ready to Make a Deal?
Many pros and cons correspond with purchasing foreclosure properties, which can result in a confusing and lengthy process. Be sure to remember these easy tips to help you have a trouble-free experience.
If buying a foreclosed home is something that interests you, make sure your finances are in order, you have a team of professionals that can help you, and you have a flexible purchase timeline. Because a foreclosed home can come with hidden expenses, you should budget accordingly. Additionally, become familiar with local foreclosure laws. Laws differ from state to state and can be very detailed and often hard to understand. Get qualified legal advice from a real estate attorney to help you uncover and avoid any wrong doings.
Buying a foreclosure is a roller coaster ride. There are ups and downs and twists and turns that make the investment a difficult process. However, the potential benefits that come with the purchase of a foreclosure can be worthwhile.