In an attempt to recover the debt a defaulting homeowner has on a property the bank may decide to foreclose on the property. Essentially making the bank the new “homeowner”. The bank may then decide to auction the property or simply list the home for sale.
If you’re in the market for a new home or you’re trying your hand at property investment you may be considering purchasing a foreclosed home. But before you do this it’s important that you carefully consider the advantages and disadvantages of such a purchase.
We’ve listed some of the benefits and drawbacks to help you get started.
In most cases, you can finance a foreclosure with a mortgage, and get an inspection if you want one.
So deciding to buy a foreclosure is no different than buying any other property the only difference is you’ll be working with a seller that is inherently more motivated. As the longer the bank owns the property, the more money they lose. For this reason, banks are often more willing to negotiate on all the terms of the sale, including the price, closing costs and other important factors.
Buying a foreclosure also ensures that you are getting a house that is already vacant, so you can move in whenever you are ready. You’re also assured that the title on the home is clear.
On the other hand buying a foreclosure may come with some costly disadvantages. For example, banks usually require additional paperwork before they can accept an offer. Also, banks may refuse to complete any repairs on the home before the purchase is completed as these homes are generally sold “as-is”. Meaning any repairs or updates to the home will become the responsibility of the buyer. So it’s very important that you have the property inspected before you purchase the home as any defects will add to the cost of the property overall.
Finally, because the bank has only owned the home for a short time, they cannot provide a comprehensive disclosure on it’s current condition or history. That said many homes may not be such a bargain after all as you’ll have the additional expense of bringing the home up to standard and possibly making needed renovations.
Making The Right Choice
Buying a foreclosure isn’t the right option for every buyer. However, if you’re careful you may find it very beneficial.
Before making an offer on a foreclosed home, be sure to consult an experienced real estate agent to get any additional information you may need so you know you’re making an informed decision. You should also consider getting a mortgage pre-approval so you can complete the purchase quickly if you decide to move forward.
You have to remember that the choice is yours when you’re making any purchase. You should avoid being hasty but instead carefully weigh all your options as this is the wisest choice.
If you still find yourself struggling speak to your real estate agent for guidance.