What to Know Before Buying a Foreclosed Home
Buying a foreclosed home can either be the deal of a lifetime or a complete nightmare in disguise. You’ve probably heard the horror stories. A new homeowner moved into their new home, a foreclosure purchase, only to realize it’s in state of disrepair.
When most buyers find their home, they have time to work with a realtor, get the home inspected, and really take their time finding the right home for them. When you buy a home that’s in foreclosure, the process is very different.
You’ll have access to lower-priced homes, but you have to accept the property as-is. This means any existing problems are passed on to you, the buyer. You might not even know about these problems in advance which can make buying a foreclosed property a gamble of sorts. Here’s what you need to know before buying a foreclosed home so you know what to expect.
What is a Foreclosure?
First, let’s talk about what a foreclosed home actually is. A home is in foreclosure when the lender takes back control of the property because the previous owner failed to pay on their money owed. A foreclosure happens after several missed payments.
Now, lenders might try to make a profit on the foreclosed home by selling it for much more than it might be worth. Most of the times, payment for these homes is expected in full at the time of the sale, though sometimes you can get a mortgage on a foreclosed property.
This is a much faster process than going through the normal home buying process. While you might still need a real estate broker and a lender, you’ll need to make a competitive offer. Additionally, the home is sold as-is, and you often don’t have the chance to inspect the home yourself or even see it before making a purchase. You might snag a great deal, but you might also have to deal with some risks like the property needing a lot of repairs.
There are Two Ways to Buy a Foreclosed Home
Unlike buying a home the traditional way, there are two ways to buy a foreclosure. The first is with a lender auction. With a lender auction, the property is sold in a public setting and you’ll need to outbid professional real-estate investors. Also, in the case of an auction, these are sight-unseen. This means you can’t see the property before you purchase.
The second way is to buy the property once the bank takes ownership of it. Then, it will be listed through a real estate agent, making this a similar process to a traditional home sale.
There are Fewer Foreclosures
Another thing to know before you buy a foreclosed home is that these are becoming harder to find. While there were plenty of foreclosure properties available after the crash of 2008, this is much less common today. The number of Americans filing for foreclosures is smaller than ever.
While you might think it’s easy to land a great deal with a foreclosure property, in reality, this might be a slim chance. Finding these properties is simply becoming a big challenge in most parts of the country.
Learn About the Home’s History
It’s always a smart idea to educate yourself about the history of a home before making a purchase. If you’re purchasing through a real estate agent, you might be able to get the foreclosed home inspected. Beyond this, take a look at the history of the home, specifically if any crime or negative actions have happened with this space in the past.
If the home seems like more trouble than it’s worth, it probably is. Sometimes the investment isn’t worth it, in which case you should just walk away before you turn into one of the many foreclosed home horror stories.
Spot Potential Problems
Take some time to learn about the most common problems with homes today. These might vary depending on where you live. Foreclosed properties are especially prone to issues since they’ve usually sat empty for some time. Similarly, because the original owner might have known a foreclosure was coming soon, they lost any incentive to take care of the property.
Things like plumbing problems, roof defects, and A/C repairs are the most common issues but don’t limit yourself to these alone. As always, if the investment seems to be more trouble than it’s worth, it’s probably time to walk away.
Buying a Foreclosed Home
Are you considering purchasing a foreclosed home? This might be a great opportunity to land a house at a fantastic price. It also can open a can of worms if you don’t know what to look out for.
These tips above cover everything you need to know before you buy a foreclosed home. Don’t be caught off guard by your new property.