Is a foreclosure property right for you? Or should you stay away?
- Buying a foreclosure is an option you might consider in a tight housing market.
- There are pros and cons to consider before going this route.
- You can save money on the purchase price, but then spend a lot more to restore it to livable condition.
Although housing inventory has opened up to the real estate market, there are still not enough properties available for sale to meet buyer demand. If you’ve been looking for a home for months and haven’t been successful yet, you may be about to consider buying a foreclosed home.
When you buy a foreclosure, you are actually buying a house that a bank or lender has repossessed because the owner stopped making payments on their mortgage. While there are advantages to buying a foreclosure, there are also a few key disadvantages you should be aware of. Let’s review.
Advantage #1: A lower purchase price
Some seizures are in better shape than others. But often when you buy a foreclosure, you get a house that’s not in the best condition. In some cases, this can mean that the house needs a lot of cosmetic work. In other cases, it may mean that the house needs serious repairs.
For this reason, you will generally pay much less for a foreclosure than for a standard home.
Advantage #2: A chance to put your own stamp on a house
Foreclosed homes often need work, but that’s not necessarily a bad thing. You may have certain design ideas that you want to bring to fruition. It’s harder to justify tearing down a pristine home to put your own stamp on it. But if you’re buying a house that’s in bad shape to begin with, it’s much easier to argue for a full renovation.
Con #1: You don’t know how much repair work you’re undertaking
Homeowners who lose their properties to foreclosure often get to this point because they have fallen on hard financial times. As such, foreclosed homes are often seriously neglected before being taken away from their owners. As a buyer of such a home, you take a big risk of having to spend more than expected on repairs.
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Keep in mind that with a regular home, you can often negotiate a discount on the purchase price if any issues are discovered during a home inspection. Foreclosed homes are often sold as is, so you can’t negotiate your way to a lower price despite the risks you take.
Cons #2: You may have a harder time getting a mortgage
Some people who buy foreclosed homes do so with cash. This is especially the case if the buyer is an investor looking to flip the house. But if you need to finance a home purchase with a mortgage, you might find it harder than usual to get approved. If the house is in really dire condition, a mortgage lender may be hesitant to provide a loan, even if you’re an otherwise solid borrower with strong credit.
Should you buy a foreclosure?
Buying a foreclosure can be a bit of a gamble. And if you go that route, you’ll really want to make sure you get a low purchase price so you have plenty of money left over to invest in that home if needed. But you may find that buying a foreclosure gives you a chance to own and renovate a property to suit your personal needs and tastes.
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