A foreclosed home is seized after the owner fails to honour mortgage repayments and is put up for sale by the bank. Foreclosed homes are owned by the bank, and their buying process is markedly different from that of standard homes. Most foreclosed properties are sold as-is, which means that the bank will not be negotiating to make repairs for you.
Some of the common reasons that lead to foreclosures include loss of a job, plummeting home prices, liquidation due to bankruptcy, expensive maintenance issues, and insurmountable credit card debt. We take a look at the pros and cons of buying a foreclosed home for potential buyers.
There Are Three Different Ways Through Which You Can Buy A Foreclosed Home:
- You can purchase from a homeowner whose property has been foreclosed. A short sale can happen in which the home is sold for an amount less than the amount owed on the mortgage. The bank will, however, need to approve the offer, and it may take some time for the approval to be completed.
- You can purchase from a bank and avoid the homeowner altogether. The bank will do everything to clear the title when you buy the foreclosed home. The majority of banks will not sell a foreclosed home to an individual but prefer to sell to a real estate agent.
- You can purchase at the auction, but you will not have an appraisal or inspection. Some of the house auction pros and cons include: you must have a large sum of money for the home purchase, especially if the auction accepts cash only, the home buying process is faster, and it is a big risk as the home is bought as-is without inspection or appraisal.
The Benefits Of Buying A Foreclosed Home
Some of the benefits of making an offer on foreclosed property include:
Lower Prices: The greatest advantage of foreclosed homes is that they are priced lower than standard homes. The reason is that the lender will price a foreclosed home such that they get the home sold for a small profit.
No Title Concerns: Buying a standard home from a homeowner has the risk of not getting a clean title which is evidence of ownership. There is always the risk of owed taxes on the property or liens placed on a property when buying from the homeowner. With a foreclosed home, such a risk is not there since the bank will clear the title for you once you have paid up fully and closed the property.
Standard Financing Options: The process of buying a foreclosure is slightly different from the bidding and buying process for the standard home. You have a few loan options to buy a home that is still in livable condition, including government-backed loans that make homeownership affordable.
Renovation Potential: There is still the possibility of the bank doing repairs on the home, even though it is not the norm for foreclosures. The bank may undertake some repairs for you, especially if the home has been on the market for a long period.
What Is The Disadvantage Of Buying A Foreclosed Home?
Overall, the buying of a foreclosed home is riskier than that of a standard home. If you are not willing to take those risks, you may consider buying a new build home from a reputable builder like Paradise Developments.
Some Of The Disadvantages Of Buying A Foreclosed Property Include:
High Maintenance Costs: Homeowners who suspect that they may lose their property to foreclosure will not appreciate the need to maintain the home. They will be hesitant to spend money on fixing problem areas in the home which will make them worsen with time. There have been instances of homeowners who have intentionally damaged the property after knowing that they will lose it to foreclosure. You will be meeting the costs of fixing all the problems you will find in the foreclosed home.
making an offer on foreclosed property
Sold As-is: Foreclosed homes are sold as-is mainly because the bank is mainly concerned with recouping their money as quickly as possible. You should set aside some money that will be used for repairs of the foreclosed home once you complete the buying process. However, not all foreclosed homes will require significant repairs.
Taken to Auction: The bank may choose to auction a foreclosed home as the best course of action in recouping the investment. In such instances, the buyer will be required to pay the full biding price of the home before being given the deed. There are no mortgage loans for auctioned homes since the appraisal process and underwriting take a long time.
Period of Redemption: The homeowner is given a period of redemption in law in which they can get their home back by clearing outstanding mortgage payments and catching up with loan repayment. Therefore, some foreclosed homes in a real estate listing may never come up for sale.
Squatter’s Right: A legally foreclosed home doesn’t always mean that the home is unoccupied. Many unoccupied homes tend to attract squatters since they may sit for months or years before it is bought. If you purchase a property that has a squatter, you will be compelled to evict the squatter using legal channels, even if they have no claim to the home. The eviction of a squatter may take a long period, even stretching into months, and cost you thousands of dollars in attorney fees.
In conclusion, foreclosed homes are generally cheaper compared to standard homes in the area, and that means you can find a good idea. You should be aware of some of the risks involved, such as buying a home with structural issues and other forms of severe damage that may inflate the overall costs of ownership due to a steep repair bill.
You must work with a real estate agent when purchasing a foreclosed home. They have the knowledge and experience of the foreclosure process and will help with the requirements of the purchase. Make sure that you get an appraisal and inspection once you find a foreclosed home that you are interested in. When satisfied with the inspection report, make the necessary follow-ups with your real estate agent and lender to complete the purchase of the property.
