Thinking About Buying a Foreclosure?: Here’s What You Need to Know About Buying a Foreclosed Home
Are you thinking about buying a foreclosed home?
One out of every 200 homes will go into foreclosure. In Washington, D.C. alone, that translates to 3,000 foreclosed homes a year!
There are certainly advantages and disadvantages that come with buying a home that’s in foreclosure. Check out what a foreclosed home is and the pros and cons of buying a foreclosed house so you can make the best decision.
What Is a Foreclosed Home?
A foreclosed home is a home that once belonged to a homeowner but is now possessed by a bank. The house was either deeded to the bank because the owner couldn’t make payments or the house was abandoned.
There are several reasons that a homeowner may go into foreclosure. These scenarios include:
- Expensive maintenance issues that the homeowner can’t afford
- Excessive debt
- Fired or laid off from work
- Health issues that prevent a homeowner from working to pay for home
Regardless of the situation that led to foreclosure, a house is left with no owner. Foreclosure is the term that refers to the legal process in which a lender tries to recover the balance owed on the house when a buyer has stopped making payments.
Now that you know what a foreclosed home is, let’s look at some of the pros and cons of buying a home that’s in foreclosure.
Pros of Buying a Foreclosure
When you’re looking to purchase a home, there can be some real advantages to buying a foreclosed house. Let’s take a look at some of the obvious (and less obvious) advantages of buying a foreclosure.
Foreclosed homes can offer you a high return on investment (ROI). Because you’re typically buying low, there’s is a greater potential of generating a higher ROI. Any renovations that you do to the home and property can increase the property value.
Price Below Market Value
Usually, when you buy a foreclosed home, you’re paying below market value. The price is often quite low because banks want to get rid of the house as quickly as possible. Another reason that homes in foreclosure are typically cheaper is that the homes may be in a distressed condition.
Better financing is another advantage of buying a foreclosed house. It’s not uncommon for a bank to offer financial deals to a property investor in order to get rid of the property quickly. If you have to take out a loan to buy the home, you will probably not need as much because the cost will be lower.
Lower down payments and lower monthly payments are an attractive quality of buying a foreclosed home.
Cons of Buying a Foreclosure
While buying a house in foreclosure has its advantages, there are obvious disadvantages as well. Let’s take a look at some of the cons of buying a foreclosed home.
Homes Are Often Neglected
Foreclosures are sold in “as is” condition. This could mean that everything looks great, or it could mean that the home needs a lot of work. Banks are in the business of selling homes, not renovating them. What you see is what you get.
It’s not uncommon for previous homeowners to damage the house prior to leaving. So while it could be in great condition while they were living there, it could be in shambles when they walk out the door for the last time.
However, if the home is in poor condition, you may qualify for a 203K loan. This is a rehabilitation loan that gives you the opportunity to turn the distressed house into a home.
Foreclosures Are Often Not in Ideal Areas
Have you asked yourself “are there foreclosures near me”? Depending upon where you live, there may be homes that are currently in foreclosure that you can potentially purchase. You should be aware that it’s not uncommon to find these homes in less than ideal areas.
However, you can get lucky and find foreclosed homes in great communities near you. Keep your eyes and ears open for these.
You Must Pay in Full
When you buy a foreclosed house, you must pay in full. You can get a loan from the bank, but you must still make the complete payment when you buy the house at an auction. If you don’t have the collateral to buy outright, getting foreclosed homes may not be the best fit for you.
You’re Not Dealing with People
When it comes to purchasing foreclosed houses, you’re dealing with banks and not individual homeowners. You’re essentially negotiating with a spreadsheet on a computer. Banks are concerned with your background or history.
With foreclosures, banks are focused on the best offer and get rid of the property as quickly as possible. Banks want top dollar and they want to move on with business.
Is a Foreclosed Home Right for You?
When it comes to deciding whether a foreclosed home is the best purchase for you, you must look at the list of pros and cons. Just like with any purchase, there are both advantages and disadvantages. When the stars align and you find the right home for you, it can be an incredible investment.
If you’re looking to buy or sell real estate, you need an experienced company you can trust. Whether you’re wanting to know how to buy a foreclosed home or sell your property, we can help. Contact us today and let us show you why clients have trusted us for more than 40 years.