Buying a Foreclosure
There are many advantages and disadvantages of buying a home that is in foreclosure.
To start, let me explain what a foreclosed home is—Foreclosure is what happens when someone does not make payments on their mortgage and the mortgage company or bank takes possession of the property. In this situation, you would be purchasing the property from the mortgage lender.
PRO: A lot of foreclosure homes can be really great deals. Quite often, the mortgage lender may offer the property at a discount in order to sell quicker. This may mean that you can afford to live in a neighborhood that is otherwise over your price range.
CON: Since these are the homes of people who did not pay their mortgage, they often were not able to keep the home is good repair. There is always a chance that the home was not properly maintained or taken care of, and that could mean more money from your pocket making those repairs.
PRO: Since the price of a foreclosure is often below market cost, it is typical that foreclosure purchasers are able to sell their homes for more than what they purchased it for, meaning you get a decent return on your investment.
CON: When purchasing a foreclosed home, you often become responsible for all debts connected to the home, including construction loans, tax responsibilities, and more.
PRO: You’ll definitely know what you’re getting into because the seller of a foreclosure must legally provide you a complete history of all the problems, repairs, and home condition.
CON: It can be time consuming. Purchasing a foreclosure can sometimes take weeks, or even months, and often require even more paperwork that the stack you get with purchasing a regular home. Unfortunately, you also aren’t guaranteed the home and the contract may be cancelled for any reason.
PRO: Searching for foreclosed homes are easy. Online real estate searches are not all the same -many of the top real estate websites such as Zillow and Trulia. Since when homes get foreclosed, it becomes public record, many of them show up on the major real estate websites. Many of the large real estate portals do not have all of the homes for sale, but will usually have all of the foreclosures.
CON: Buying a foreclosed home can require much more knowledge of real estate process. Because the seller is a financial institution or REO, they usually require additional paperwork. In most instances, the additional contracts or addendum only benefit the seller. Be VERY careful when purchasing a foreclosure as the general real estate standards for your area may not apply.
You can definitely get a great deal if you find the right foreclosure, but you have to have the time and patience, as well as the right real estate team on your side to make it through the process, which will be well worth it in the end.