Articles and Advice

Should You Buy A Foreclosed Home?

A forclosed home may seem like a deal, but there are pros and cons to it just like anything else. Here's what you should know.

Foreclosed homes can create excellent buying opportunities for home shoppers, but how do you know if it's worth the risk? Between 2008 and 2015, foreclosed homes were common on the market. While they're not nearly as common today, they do still pop up and can often be purchased at a low price. This is usually because banks are usually eager to recover their costs.

If you're planning to make an offer on a foreclosed home, there are several things you should know before beginning the process.

What Is A Foreclosure?
A foreclosed home has been seized by a bank because its owner defaulted on the mortgage. As a result, foreclosed homes are owned by banks. When you enter into a mortgage contract, lenders implement property liens, which entitle them to take over your home if you stop paying your mortgage.

3 Ways To Buy A Foreclosed Home

A Short Sale - The original homeowner might decide to sell the home for less than the total owed on the mortgage; however, this may be subject to bank approval which can take some time.
At Auction - Foreclosed homes are usually sold at auction. In order to purchase a home at auction, you'll likely need to make the full purchase in cash. The majority of auctions do not allow for financing through a mortgage.
From The Bank - You may also have the option of purchasing the property directly from the bank if the property hits the market. However, you'll need to work with a real estate agent as most banks don't sell directly to individuals.

Risk Of Buying A Foreclosed Home
While you might be able to grab a foreclosed home at a bargain price, these homes are usually not without some degree of risk. Below are several things you'll want to keep in mind when deciding whether to purchase a foreclosure:

Maintenance Concerns - If a homeowner is struggling financially, and they know they're going to lose their home, chances are they aren't keeping up with maintenance and repairs. Don't be surprised if the home comes with significant issues. Make sure to keep enough cash on hand to deal with maintenance problems as they arise.
As-Is Sales - When buying from a bank, the sale of the home may be "as-is," which means there is usually not a home inspection contingency and you don't have negotiation power when it comes to repairs. What you see is what you get.
Redemption Periods - Many banks do offer homeowners the ability to redeem their property if they're able to catch up on bills. You may have to wait a period of time before you can actually claim the foreclosed property. Redemption periods vary by state.

Should You Buy A Foreclosed Home?

The answer ultimately depends on your situation and risk tolerance. In many cases, it can be difficult to know exactly what you're walking into. Don't be fooled by the price tag. The best advice is to not invest all of your cash into the purchase of a foreclosure, as you'll need to keep a significant amount on hand to deal with repairs.

When buying a foreclosed home, you may end up getting a great property at a reasonable price. The key to mitigating the risks is to work with an experienced real estate agent who can help guide you through the process and point out potential risks.

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Should You Buy A Foreclosed Home?

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