When a homeowner is no longer able to afford their mortgage payments and ceases to make their payments, the mortgage lender is forced to take ownership of the home. When this happens, the home goes through what is called a foreclosure and will go up for sale to a new owner.
If you are willing to navigate some of the challenges inherent in purchasing a foreclosure, they can be a financially friendly option. However, there are a few things you’ll want to know before making the decision to buy a foreclosure.
Foreclosures Can be Financially Friendly
Often times, the lender who owns the foreclosed home is eager to sell the home at a discounted price to remove the house from their books. For this reason, foreclosures can be a great option for a home shopper looking for a larger home, or interested in a certain neighborhood that would be typically outside of their budget.
Before you start the buying process, make sure that you check comparable prices around the neighborhood to make sure you understand what level of discount you may be getting.
They May Require More Work
One reason a foreclosure may be discounted is because of the amount of work it requires. The home was foreclosed on because the previous homeowner didn’t have the funds to pay their mortgage, which may mean that they may not have been able to keep the home in good shape.
The longer a home is vacant, the more susceptible it is to vandalism and theft. Break-ins and property damage aren’t unusual and can lead to costly repairs and fixes. Here are some additional issues that may be a problem the longer a house is unoccupied:
- Broken pipes
- Missing wiring
- Ripped out appliances
- Structural damage
This is why it is even more crucial to have the home inspected prior to purchasing. If the remodeling is severe, what seemed like a financially good deal may no longer fit your budget taking the repair expenses into consideration.
There May Be Red Tape
Buying a foreclosed home requires extra steps not present in the typical home buying process. It can take weeks to hear back on an offer you put down on a home. Unfortunately, there is no guarantee that you will secure the home during that time because the lenders selling the home will wait as long as possible to make sure they’re getting the best deal.
Patience is the key, but it is not always possible. If you are looking for a new home and need to move in quickly, foreclosures may not be the best option. Along with longer closing times, the previous owner may need to be evicted, which in itself can be a long and difficult process.
Other Things to Consider
Securing a mortgage for a foreclosure can be difficult for several reasons:
- If you haven’t worked out financing before you put an offer down, the home may go to someone else.
- Not all lenders will loan money for distressed properties. Make sure that you know who will offer a loan on a foreclosure.
- FHA and VA loans may not be an option because they often require the home to be in good working condition.
- Conventional mortgages may appraise the value of the home low based on its condition and require improvements before you secure the loan. Unfortunately, foreclosures often require you to buy the home as-is.
If you need help navigating the process of buying a foreclosure, your first step is getting pre-approved. Understand the challenges that may be ahead, and weigh them against some of the pains and aggravations.
We are here to help make the home-buying process easy and headache free. If you need help and are interested in buying a foreclosed home, come in and see us. We can help walk you through the pre-approval process and work with you so that you can get into the home of your dreams.