Buying a foreclosed home can sound like a wonderful idea. You could get a great home for a great deal, right? Well, while it could be a good investment, the truth about buying a foreclosed home is that there is often more to it and it can come with a wide variety of challenges.
Foreclosures happen when an owner defaults on their loan. This often means that they are motivated to sell and you can get the home for a good price. But while you may be able to get a good deal on the property, you’re often paying in other ways.
- Pre-foreclosure When searching for homes online, often you will see homes listed as “pre-foreclosure”, but what does that mean? Once a homeowner is 90 days behind on mortgage payments, the bank may begin the foreclosure process. Banks must give public notice, which is why these show up on home search sites. This does not necessarily mean that the property will foreclose though, the owners may be able to work with the bank and figure something out to keep the property.
- Short Sale A short sale can occur when an owner owes more on the mortgage than the property is worth. While you may be able to get a seller to agree to a good deal, ultimately it comes down to if the lender is willing to accept that price.
- Sheriff’s Sale When a property has been seized by the sheriff’s office, they want to get rid of it as quickly as possible. Because of this, foreclosed homes are typically purchased by investors looking to flip the house and have cash bids to offer.
- Real Estate Owned When homes have not sold in the previous two ways, the bank or lender owns them, so you would be purchasing the property from the previous owner’s mortgage lender. Typically they are looking to recoup what is owed on the property and are willing to negotiate.
If you decide that this is a path for you, there are a few things to note:
- Foreclosed homes are generally vacant, sometimes for years, so issues that a normal seller would disclosure, you may not know about before purchasing.
- Foreclosed homes are generally sold “as is” meaning you may be purchasing a home in great shape or one in need of serious repairs. There can be unforeseen repairs and renovation work that needs to be done.
- Most of these homes are winterized, and the buyer must pay for them to be de-winterized, if the bank will allow it. This often means that the inspection will not be as complete as an occupied house.
- If you take on this property, you also take on any delinquencies and liens that come with it. The government must first be paid and settled before you can move forward with the buying process.
- Some lenders will only accept offers from buyers who would live in the home for a period before opening it up to investors. If you’re looking to live in this property, this would work in your favor as you’ll have less competition from investors than you might have on traditional transactions.
- Since there are so many unknowns on a foreclosed property, the timeline for closing on a home can vary widely.
If you’re considering purchasing a foreclosed home to either live in or invest in, give us a call. We’re happy to help you walk through the process and make an informed decision.
Want more information? Check out our Home Happy Hour Video on The Truth About Foreclosed Homes.