Home foreclosures are nothing new to homeowners in the US. In fact, in March 2022 alone, there were 33,333 foreclosure filings. This is despite the Biden administration’s moratorium on foreclosures because of the pandemic.
Buying foreclosed homes is an excellent way to get incredible deals on houses. Others buy foreclosed homes to fix and flip them at a profit. Regardless of your reason, it’s worth noting that buying foreclosed homes isn’t that straightforward.
There are tons of risks that come with buying these homes, and they may not always be a good idea. Are you looking to buy a foreclosed home? If so, here are a couple of things you need to know before making your purchase.
1. Know What a Foreclosed Home Is
First things first, it’s important to completely understand what a foreclosed home is.
A foreclosed home is a home that’s had a mortgage loan default. In most cases, a house foreclosure happens because the homeowner has failed to make their mortgage payments on time.
The foreclosure process can be long and complicated, but it typically starts with a notice of default. This is a formal notice from the lender to the borrower, letting them know that they’re behind on their payments.
If the borrower doesn’t take action after receiving this notice, the lender can then file a notice of sale. This is a formal announcement that the home will be auctioned off to the highest bidder.
Once the foreclosed property is sold, the homeowner will no longer have any ownership rights to it.
2. The Home’s History
When you buy a foreclosed home, you’re also buying its history. This is something that many people don’t think about before purchasing these homes.
Before you buy any property, it’s important to do your due diligence and research the home’s history. You can start by looking up the property’s address on Zillow or Trulia. This will give you an idea of how much the home has sold for in the past and any recent changes to its value.
It’s also a good idea to research the property’s tax history. This will give you insight into how well the previous owner maintained the home. If there are any liens or unpaid taxes, you may be responsible for paying them off.
Also, check the home’s crime history. This is especially important if you’re looking to buy a foreclosed home in a high-crime area. You can find this information on the local police department’s website.
3. Buying Foreclosed Homes at Auctions Is Difficult
Many people think that they can buy foreclosed homes at auction. While this is technically true, it’s not as easy as it sounds.
Auctions are typically held when the home is in the pre-foreclosure stage. This is the period of time between the notice of default and the notice of sale.
If you’re looking to buy a foreclosed home at auction, you’ll need to have the cash available to pay for the property upfront. You’ll also need to be prepared to move quickly. Once the property is sold at auction, the new owner will typically have to move in within 30 days.
What’s more, you have to outbid real estate investors with deep pockets. Plus, remember, auctions only accept cash payments. So, unless you have $200,000 at hand, a foreclosed home auction is not for you.
4. It’s Easier to Buy Bank-Owned Foreclosures
If you’re looking to buy a foreclosed home, your best bet is to buy one that’s owned by the bank.
Bank-owned foreclosures are homes that have been through the entire foreclosure process and have been repossessed by the bank. One of the benefits of buying a bank-owned foreclosure is that you can buy it with a traditional mortgage loan through the bank’s real estate agent.
Another benefit is that you can usually get a bank-owned foreclosure for a much lower price than one that’s being sold at auction. This is because the bank wants to get rid of these properties as quickly as possible.
5. Don’t Forfeit the Home Inspection
Just because you’re buying a foreclosed home doesn’t mean that you should forfeit the home inspection. In fact, it’s even more important to get a home inspection on these types of properties.
A home inspector will be able to tell you if there are any major problems with the property. This is valuable information that gives you negotiating leverage on the price of the home.
What’s more, if the home inspector does find any major problems, you can use that to get the bank to lower the price of the home or make repairs before you buy it. In some cases, the home may not be worth purchasing.
6. The Appraisal Is Important Too
In addition to the home inspection, you’ll also need to get an appraisal on the property. The appraiser will assess the value of the property and make sure that it’s worth the price you’re paying for it. This is important because you don’t want to overpay for a foreclosed home.
However, keep in mind that the appraised value is not always the same as the market value. The appraised value is what the property is worth, while the market value is what people are willing to pay for it.
It’s also a good idea to have realistic expectations of the property’s actual worth before you start making offers.
7. What Risks Are There When You Buy Foreclosed Homes?
Now that you know a few things about buying foreclosed homes, it’s important to understand the risks involved. This will help you make a more informed decision on whether to buy the foreclosed home. Some of the risks involved in buying a foreclosure include:
The Home Might Require Expensive Repairs
One of the risks of buying a foreclosed home is that it might require expensive repairs. This is because most foreclosures are sold as-is, which means that the new owner will be responsible for any repairs that need to be made.
If you’re not financially capable of paying for the repairs, then you should avoid buying a foreclosure. Alternatively, you can find a foreclosed home, with less severe damage. That way, you won’t break the bank paying for repairs.
The Process Can Drag On for Ages
The process of buying a foreclosure home can take a long time. That’s because the bank has to go through the foreclosure process, which can take several months.
In addition, once the bank has repossessed the home, it can take a while to get it ready for sale. This means that you could be waiting a while before you can even start making offers on the property.
If you’re not patient, then buying a foreclosed home is probably not for you.
Outstanding Liens and Other Fees
Another risk of buying a foreclosed home is that there could be outstanding liens or other fees attached to the property. This means that you could end up paying for someone else’s mortgage if there’s an outstanding lien on the property.
Similarly, if there are any unpaid taxes or homeowner association dues, you’ll be responsible for paying those as well. Before buying a foreclosed home, do your research and make sure there aren’t any outstanding liens or fees attached to the property.
The Property Might Have Been Vacant for Too Long
Another risk of buying a foreclosed home is that the property might have been vacant for too long. This can lead to a number of problems, such as:
- Vandals could have broken into the home and damaged it
- The home could be infested with pests, like rodents or insects
- The home could be damaged by elements, like rain or snow
If the property has been vacant for too long, it could end up costing you a lot of money to make the necessary repairs.
So, if you’re thinking about buying a foreclosed home, be sure to do your research and understand the risks involved. With a little bit of knowledge, you can make an informed decision on whether buying a foreclosure is right for you.
Keep these risks in mind when you buy a foreclosed home to ensure you’re making the right choice. However, you can always look for foreclosed apartment buildings for sale. These are less likely to have issues like major damage or outstanding liens.
Get Value for Money With Foreclosed Homes
If you keep the above in mind when buying foreclosed homes, you’ll be sure of getting a lovely home to live in or sell for a profit. Just remember to arrange a home inspection and appraisal to get your money’s worth.
Bank-owned foreclosures are the best, but if you have the cash, who’s stopping you from buying foreclosed homes from an auction? Otherwise, we wish you nothing but the best with your new foreclosed home.
We hope you now know how to buy foreclosed homes. For more informative content, check out the other posts on the site.