After the housing bubble burst in 2008, there were a huge number of foreclosed properties in the US. While the worst of those days are over, there are still a good deal of foreclosed homes for sale.
Some people see foreclosed homes as a good way to get a bargain on a property, but there are some challenges to buying a foreclosed home and the process is rarely as easy as you think. If you have the time and patience to work through extra steps it takes to buy a foreclosed home from a financial institution or the government it can be very rewarding.
Basically, a foreclosed home is one where the owner stops paying the mortgage and the lender takes back the property. Then the lender, through a real estate agent will put the property back on the market. If you’re a potential buyer, you end up buying the property from a bank or a government organization rather than an individual.
The biggest challenge to this is that an individual will make their house as attractive as possible but an institution has no real motivation to do the same. Foreclosed houses for sale are usually purchased in ‘as is’ condition.
And that means they may need some serious work before you can move in or use them as rental properties. It could be that what you save on the price may be less than the work you have to do to repair it.
This is when it’s especially important to know what you have to spend (see our mortgage calculator) and then don’t give yourself any wiggle room. Also bear in mind that if you have to do significant work on a foreclosed home, whatever you think it’s going to cost is likely optimistic.
Most contractors will bid on work as they see it but once into the job, things may change. Those changes affect your timeline as well as your budget and if you don’t have the time or money to get it done, your dream project may turn into a nightmare.
This isn’t to say that buying a foreclosed home should be avoided, it’s simply not as straightforward as buying an existing home or new home and you need to be prepared when you make the decision.
If you found this information helpful, you may also want to check out these articles:
- Tips for First Time Home Buyers
- Improving Your Credit for a Mortgage
- How to Choose the Right Mortgage Lender
- How Much Mortgage Can You Really Afford?
Lost? Contact us for a reliable guide through the home buying process.