How Buying a Foreclosed Home is Different from a Typical Home Purchase
Posted on Wednesday, June 14, 2017
Should you purchase a home in foreclosure?
When you find homes for sale, foreclosure is one of the many reasons that those homes could be on the market. Is foreclosure a golden opportunity for you as a home buyer, or is it a situation that you should avoid? Buying a foreclosure is different than a typical home purchase. Here's why.
It Looks Like a Steal
If you are house-hunting in areas at the top end of your price range, a foreclosure looks like an excellent way to get into the housing market in that area. After all, foreclosure is a lender or bank's way of getting some of their funds back for the mortgage investment that they made in the property. Foreclosures can be far less expensive than surrounding houses, and that makes them tempting to future property owners.
A Foreclosure Involves Risk
Buying any property involves financial risk, but a foreclosure comes with additional risk. Before you buy a foreclosed home, it is important to understand that foreclosure is a sometimes lengthy process; there are multiple opportunities throughout that process in which either the homeowner can resolve the delinquency or a potential buyer can make a purchase.
You can purchase a home on a short sale, in which sales from the home are put against the liens owing on the property. The property may also be up at auction if the owner is unwilling or unable to sell. At this time, it is common to be asked to give the full payment for the home up front, and you may not be able to view the home before bidding.
Depending on when you buy, you may be expected to clear liens on the home. You will need to look carefully to see what is owing before you make this financial commitment. Look and look again. According to Kiplinger, "there may be title problems that aren't of record or that appear on the record between the time of your title search and the public sale."
The Purchase Process Can Be Very Short or Very Long
If no one buys the property at auction, the home will revert to lender or government ownership. These entities will often clean the home and will clear liens, but they will also try to get their money back through a property sale.
Lenders want to act quickly. They will put homes up for sale and look for a rapid turnover, and there can be competition that drives the price up and makes the home less of a deal. If you are working with a government agency such as Fannie Mae, you will experience the opposite; there is often a lot of paperwork and the purchase process can move slowly.
Be ready to do more maintenance on a home that has been in foreclosure.
Foreclosures Come With Extra Maintenance Needs
Since a foreclosure is a result of homeowners who are unable to pay the bills, it is unlikely that they were able to make investments in the wellbeing of the property. When you are buying a foreclosure, be prepared that you are not going to get a showroom-style home. You are going to get a property that you will need to decide to accept with all of its flaws, and there can be a lot of flaws. Depending on the time that you purchase the property, you may not be able to assess the home through a home inspection to see if you are able to take on the financial commitment of working to make the home liveable.
You Are Buying a Home in Crisis
When you buy a foreclosure, you are walking into a crisis situation. Those who live in the home may be very unhappy that they need to sell. They may even cause damage to the property or leave garbage behind. While intentional damage may not be the first thing that springs to mind when you think about buying a home, it is a possibility in a foreclosure situation. If the owners are gone because the lender now owns the house, the home is likely boarded up, and this can lead to problems during the fall and winter months as the house falls into disrepair due to lack of use.
At Open for Homes, we are here to help you find the right property for your family. When you look at homes for sale, foreclosure is one of your many options to find the best deal, but you need to understand the risks as well as the potential rewards. Take a look at the blog at Open For Homes and let us help you consider how to make the right choice for your family's future.