Why you should, or shouldn't buy a foreclosed home

Homeowners are able to get great deals on foreclosed homes, but it is a risky process and you should be aware of those risks. There are pros and cons to buying foreclosed homes. To begin with there are several types of properties that are generally known as foreclosures. The first is pre-foreclosed homes which are in danger of becoming foreclosed, but still owned by tyhe home owner. A foreclosure is a property that is sold or repossessed by a creditor or lendor to recover the amount lost.

While pre-foreclosures are trying to be sold quickly by the homeowner, foreclosures are usually sold at auction by the bank.

Pros of buying a foreclosure

     Because you may be able to buy a home at great discount, you're winning the deal to begin with. Also if the home is in the pre-foreclosure the homeowner is trying to sell it quickly to avoid going into foreclosure. Because these homes are sold in a hurry, it gives the buyer major advantages.

Most banks are often willing to sell at discounts because the longer they hold these properties the more expensive they become in terms of taxes, maintenance, etc.

Foreclosures can be found at all price points like small starter homes to gigantic luxary homes, and sometimes only need some minor repairs.

With some sweat equity, and some hard work to repair and upgrades a homeowner can turn a distressed home into one with some appreciation and increased value.

Cons of buying a foreclosure

     Since a number foreclosures are sold at auction, you may have some steep competition when bidding on property. You may also have to pay cash that day for the home and may not even get to inspect the house before you buy it.

Foreclosures aren't always sold with a discount. Some of the time thepre-foreclosure sellers price them higher than they're worth to try and pay a little more on their mortgage and/or taxes. Banks are looking to recoup as much of the money thats owed on the house anyway. 

Some lenders don't offer loans for distressed properties.

Some foreclosures may need some serious and costly repairs. For example, the previous owner let the house fall into dispair because they couldn't afford to keep the house in good shape.

Foreclosures are often vandalized and looted. It isn't absurd to see houses that have mjaor appliances missing or holes in the wall, or other vandalism around the property.

Because foreclosures tend to sit empty for a period of time, maintenance issues may arrise. Issues like mold, rodents, water piping, could easily take a home and ruin it.

It is important to do your research because some foreclosures have liens attached to them. You might find yourself paying someone else's costly debt on the property when it was never your problem to begin with.

Foreclosures are often sold as is and banks won't take the bill to make the needed repairs.

At times it is the buyers responsibility to begin the evition process. They have to pay legal fees to get the previous owners out of the house.

Lastly, purchasing a home from a lender can be a lengthy and time consumer process that is full of red tape. AND RED TAPE SUCKS!

Discussion

#1 Posted by Virgil Jones at 6/1/2012 11:32 PM
You hit it right on the head. Doing your due diligence up front is key and if you overlook just one item, you could be setting yourself up for a nightmare. While there are tons of great deals out there, not rushing to a decision is key.

Great article,
Virgil

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