Tips for Buying a Foreclosed Home

by c21commonweath_ldowling 4. March 2019 14:08

You might be familiar with what a foreclosure is but understanding the buying and selling process surrounding it can be a challenge. A foreclosed home happens when the owners are unable to pay the mortgage and the lender, usually the bank, takes on control and ownership of the property. As a result of foreclosure, the lender will typically try to sell the home for much less than its value. Since the banks are eager to sell foreclosed homes, the asking price is usually a combination of the remaining mortgage, interest, lawyer fees, and penalties. This usually accumulates to foreclosed homes being sold for 15% below their value, making it a big bargain for buyers. Find out what goes into buying a foreclosed home, the risks, and the benefits to make the smartest decision when deciding to purchase a foreclosure.

Buying Foreclosed Homes at Auction

Once a house has been foreclosed, the lender will likely try to resell it. The usual first step lenders take in selling a foreclosed home is a foreclosure auction sale. The lender will likely try to resell the foreclosed house in an auction setting, where potential buyers typically pay cash up front and buy the house sight unseen. While buying a house at foreclosure auction can offer a big chance for savings for potential buyers, it also comes with a big risk. If a foreclosed house is sold at auction, the new buyer assumes total responsibility, including all risks should anything go wrong or be damaged. Buying a foreclosed home at auction is a big decision and should be thought about beforehand to ensure the buyer is willing to take on total risk of every aspect of the property.

Real Estate Owned Properties

If a foreclosed house does not sell during a foreclosure auction, it becomes a real estate owned property, or REO property. A real estate owned property is a house that has been foreclosed due to the owner’s inability to make mortgage payments and is now owned by the bank or real estate agent. Once the home is real estate owned, potential buyers may contact the real estate agent on the listing to express interest in the home as usual. However, this selling process tends to move more slowly than others as the lender's goal is to eventually make their money back on the unpaid loan. Lenders can be unmotivated to move quickly when selling REO properties, making this process not ideal if you need to buy quickly.

Buying as Is

The biggest risk when buying a foreclosed home is buying the home as is. This is typical in all foreclosure processes as the lender is unlikely to make any improvements to the home. Additionally, many foreclosed homes have the potential to be in bad shape as the owners likely couldn’t afford maintenance or renovations. While typical homes being sold require inspections and disclosure of defects, buying a foreclosed home has none of those requirements. Buyers should be extra cautious of buying a foreclosed home as they are assuming responsibility for the entire property, including its flaws and necessary renovations.