What is a foreclosure?
Foreclosed homes have been repossessed by the bank or lender due to the owner’s inability to keep up with payments on their home loan. In turn, the bank or lender reclaims the property and puts it up for sale. Banks make money by lending, not by selling homes, so they often are eager to get rid of the home even if it closes for under market value. This presents a huge opportunity to buy a home for a great price!
However, buying a foreclosed home does come with some risks, which can include:
Since the former occupant of the property isn’t able to keep up with payments, there’s a good chance that maintenance and repairs have been neglected as well. Make sure to have the property thoroughly inspected by a reputable inspector before seriously considering the home as an option.
The previous owner
If the previous homeowner is still living in the home when the home auction is taking place, it is not unheard of for them to vandalize or deface the property out of frustration or anger of it being repossessed.
Judgments and liens
Foreclosed homes can sometimes come with unclear titles or liens that you may be responsible for paying off when closing the deal.
Because the bank is selling the home instead of the previous owner, they may not know what problems or issues there may be with the property.
Foreclosed properties attract many different types of people seeking a good deal on a home. You’ll likely have to compete with regular home buyers as well as investors who may be willing to pay for the home with cash.
If you understand the possible disadvantages of purchasing a foreclosed home and still believe that it’s a good option for you, the following tips will help make buying a foreclosure a much smoother process:
Thoroughly inspect the home
Try to find out as much as possible about the property. If you can’t obtain a home inspection, scrutinize the exterior of the house carefully and look through the windows. This may reveal some major damage to the home that could have been caused by the previous owner. Speak to neighbors who might have information about the property’s previous owner and recent history.
Know the market
Understand how much comparable homes in the area are selling for. Foreclosed homes aren’t always a great deal. If well-maintained homes in the area are selling for a similar price, the foreclosed property may not be worth the extra hassle and uncertainty.
Know your purchasing timeline
If you are in a rush to buy and move into your new home, buying a foreclosed home might not be for you. Buying a foreclosed home can be a lengthy process due to strict laws and the bank’s involvement in selling the home. The home may also need repairs before you can move in, so make sure you have a place to stay while renovations are being carried out.
Have your finances in order
Foreclosed homes can often come with many unexpected expenses such as liens, repairs and legal costs which can add up quickly. Ensure you have enough money for these expenses. It’s also important to be pre-approved for your mortgage and have your down payment ready. Due to the strong competition, it’s crucial to put yourself in the best position possible when buying a foreclosed home.