Is it Good Idea to Buy a House in Foreclosure?
For a while you find yourself driving past a certain house some days when you don’t have to. There’s just something about it that calls to you. When you see that it’s foreclosed, you know deep down that it is time to buy it. However, there are several things you should know and consider before investing in a home that’s been foreclosed on. While you can save money, buying a home in foreclosure is also a risk. If you’re wondering whether you should buy a home in foreclosure or not, keep reading to find the answers to your foreclosure questions.
What Is Foreclosure?
When most people buy a home, they have to take out a loan from a mortgage lender. These lenders require homeowners to make monthly payments over a long period (generally 30 years) until the home is fully paid off. Once your home is fully paid off, you only have to worry about paying property taxes. However, some people have trouble paying their monthly mortgage for a variety of reasons. When this happens, a home goes into foreclosure.
Homeowners who have their homes go into foreclosure have generally missed several payments, at which point the bank decides to repossess the home. The bank can then sell that home to try to get as much money back as possible. These homes are sold to the general public as foreclosure homes and are often sold below market value.
Benefits of Buying a House in Foreclosure
The biggest benefit to buying a house in foreclosure is the fact that these homes are often sold under market value. If you can find foreclosure homes for sale in your area, you can typically get a larger home than you’d be able to get otherwise. This makes buying a house in foreclosure particularly attractive for those who want to invest in real estate since larger homes can appreciate in value much quicker.
Neighborhoods also do a lot to determine the values of homes, and it can be hard to find affordable homes for sale in nice neighborhoods in some cities. When you opt for a foreclosure, you can get access to neighborhoods and parts of the city that you may not have been able to afford otherwise. Some of the benefits to buying homes in better neighborhoods include:
- Close proximity to grocery stores and restaurants
- Better schools for children
- Lower crime rates
- Better property value outlook
Sometimes lenders will offer seller concessions for homes in foreclosure, which makes them even more attractive. Even something as simple as having closing costs covered can make a big difference when it comes to the upfront cost of buying a home.
Downsides of Buying a House in Foreclosure
While buying a house in foreclosure is a good way to get a better home with a smaller investment, there are also downsides to the process. If you’re going to buy a home in foreclosure, it’s important that you understand the potential downsides and the unique aspects of the foreclosure home buying process.
Perhaps the biggest downside of buying a home that’s been foreclosed on is the fact that you could be dealing with real estate in distress. Some homeowners take good care of their home even when they can’t make their mortgage payments, but there’s always the potential of a homeowner neglecting their home as they start to miss payments. These are some of the most common problems with foreclosure homes:
- Structural issues
- Mold and water damage
- Code violations
- Vandalism
- Theft
If you’re going to buy a foreclosure home at an auction, you’re going to need cash instead of a loan. This makes it difficult for many people to afford a foreclosure home that’s gone to auction, which can be a hurdle in the buying process. Of course, this isn’t the case if you buy a foreclosure home that isn’t purchased at auction; this cash payment is simply a requirement of auction home sales.
It’s also important to keep in mind that it may take longer to close on a home that was previously foreclosed on. The home buying process is already fairly complex and long without throwing anything else into the mix, but a house in foreclosure adds extra paperwork that can delay the closing date. This might not be a big difference for some homeowners, but a delayed closing date can be a dealbreaker for some buyers.
Finally, you’ll probably have to buy a foreclosure home as-is, since banks don’t typically make repairs on homes that have been foreclosed on. This is part of the reason you get a lower price on homes that have been foreclosed on, but it’s important to have a good buyer agent on your side to make sure you’re not investing in a home that needs extensive repairs.
So, is it a good idea to buy a house in foreclosure?
Each foreclosed house is going to be unique, and every buyer will have their own personal expectations. If you want to save money buying a home and you don’t mind waiting a little longer for closing, buying a house in foreclosure can be a good solution. However, it’s important to look at the condition of the home before you buy, that way you’re not stuck making expensive repairs you can’t afford. If you want to buy a home in foreclosure to save money, make sure you have a good buyer agent who can help you properly assess the home.
Buying a home is a huge deal, and you don’t want to rush into it simply because you can get a good deal on the price. Make sure to work with a top real estate agent who can walk you through the process and help you avoid any complications.
