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Should you buy a foreclosed home?

 

Whether you are looking for a home to live in, or rent out for income, or flip and sell, you may be tempted to purchase a foreclosed home.

But should you buy it? Is it a good option? For that, you need to understand some background information on foreclosed homes.

What is a Foreclosed Home?

A foreclosed home is a property that has been through the foreclosure process, which was initiated because either the borrower defaulted or failed to make monthly payments, and did not take alternative steps such as a deed in lieu of foreclosure or loan modification.

Once the bank or the lender takes possession of the property, it wants to unload it as quickly as possible, and oftentimes that means a significant discount for the next home buyer. To redeem its investment, the lender will send the foreclosed home to an auction, where a buyer or an investor purchases this property.

 

Now that you know about foreclosed houses, we should explore whether you should purchase a foreclosed property or not. So, here is the comprehensive detail of the potential advantages and disadvantages of purchasing a foreclosed home to make it easier for you to make a decision.

Advantages of Purchasing a Foreclosed Home

Here are some of the most common benefits of purchasing a foreclosed home

  1. A Low Purchase Price

One of the major benefits of buying a foreclosed house is snagging a great deal. Lenders are eager to unload the property and recoup their money as soon as possible. This gives the new home buyer a chance to negotiate the purchase price down and pay less than he normally would for a similar home.

 

  1. Opportunity to buy in a neighborhood that is otherwise out of reach

When you are buying a home on a limited budget, a foreclosed home gives you a chance to get into a neighborhood you otherwise couldn’t afford. This is important if you are looking to purchase a home in a particular district that either has the amenities you want or is closer to your office or kids school.

 

Disadvantages of Purchasing a Foreclosed Home

On the flip side, there are some disadvantages as well to purchasing a foreclosed home. For example

 

  1. You will need cash if you’re buying a foreclosure at an auction

When you purchase a foreclosed home at an auction, know that you will need to pay the purchase price in full-cash.

Granted, that you do not need to come with the full price on the day of auction, but you will probably need it at least for the down payment. And you will need to pay the rest of the purchase amount soon after. So, purchasing a foreclosed home is only a good option when you have enough cash flow going on.

  1. You may need to purchase the property as is

Homeowners who became unable to put the monthly mortgage payments probably had cash-flow issues, so their properties are usually left in dis-array. Furthermore, lenders that possess the foreclosed homes rarely make any repairs. So, when you buy a foreclosed home, you probably have to purchase it as-is.

 

 

  1. Your closing may be delayed

Although lenders tend to unload foreclosed properties quickly, the closing process can be escalated. As lenders often have backlogs that delay closing. Therefore, if you want to move into your new home quickly for some reason, you may want to think twice before buying a foreclosure.

 

Bottom Line

On the surface, foreclosed homes seem very appealing. However, costs can be highly unpredictable and the underlying damage could make a property undesirable. The buying process is also very sluggish so it’s important that you assess the risks thoroughly before you make any decision on purchasing a foreclosed home.

While that being said, foreclosed homes can also end up being incredible deals for some buyers. But you should work with an expert and have a game plan for the required cash-flow to take advantage of such a situation.

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