When you're searching for a home, it can be hard not to be attracted to a foreclosed home. They're often a great price and some are located in desirable neighborhoods, but don't be so quick to jump at the opportunity. Here are a few things you should know before you commit to buying a foreclosure property.
Types Of Foreclosure Properties
There are four stages of a foreclosure sale, and knowing the difference between them could help protect you as a buyer.
- Pre-foreclosure or short sale: With these ones, the current owner still has control over the property and will vacate when the home has been purchased by a buyer. The advantage to this type of sale is that the home is still sold as-is, but buyers can opt for an inspection before the transaction is finalized. Learn more about the some of the problems that can arise with this kind of transaction below.
- Auction sale: If a home doesn't sell in a short sale, it's sent to the auction block. These are typically executed by a third-party to help prevent a bias or playing favorites with properties. During this, however, the lender can't make a profit at the auction, and any money that's made over the cost of the home will be applied to the outstanding liens on the house. One of the biggest drawbacks for buyers is that these purchases are cash only sales, and not many people are able to just stroll into an auction with enough bills to buy a house. Also, if there are any outstanding liens on the house that weren't covered by the sale, you (as the new owner) are now responsible for them. Here are a few more things to watch out for if you wish to purchase a property at an auction.
- Real Estate Owned (REO): If the property doesn't sell at an auction, then the lender assumes full ownership. This is the most popular method of purchasing a foreclosure as it's usually comes with the lowest risk to the buyer. The biggest benefit to buying a foreclosure home this way is that many of the liens on the home is taken care of by the lender/current owner.
- Government owned: Similar to an auction, you're likely going to have to pay in cash for these properties, but the various government agencies might be able to help out with the financing too, depending on which agency owns the property.
Things To Watch Out For If You're Considering A Foreclosure
Expect An Impersonal Experience
In most cases you'll be dealing with a lender or a bank, either of which are all that interested in your needs as a buyer. Their main priority is to make the money back on the property, so if the numbers add up in their favor they'll make the deal.
Avoid The Auctions
It can be hard to pass up a really good price on a home, but even the smartest buyers sometimes get swindled at the auctions. Since you can't perform a house inspection, you're essentially flying bling and just relying on a hope that the house isn't in need of any major repair. This could open up a whole new can of worms that you weren't anticipating, and make the foreclosed home a more expensive purchase than a brand new home could be.
Watch Out For The Former Owner
If the old owner is still in the home when you purchase it, you're now responsibility for gettign them outt, which might sound easier said than done. It's an unfortunate reality that some owners are a little bitter about being evicted from their home, and can occasionally wreak havoc on the residence before their departure.
Get Prequalified Before Shopping
This is a pretty standard rule of thumb for anyone who's in the market for a home, whether it be a foreclosure, resale, or recently built residence. Know what you are able to spend in advance, then you can allocate your budget to purchase price and repairs.