Buying a Foreclosed Home: The Pros and Cons You Need to Know
If you want to get a larger home than you could normally afford, buying a foreclosure can be a good option. Foreclosed homes are significantly more affordable than standard homes for sale, but they can also come with unique risks that you don’t have with an ordinary purchase. Before you invest in a foreclosure, it’s important to know the pros and cons of buying foreclosure homes. While buying a house in foreclosure can be a great way to find a home sold below market value, you should also consider the downsides of buying a foreclosure before you buy.
What Is Foreclosure?
Buying a home is a very expensive endeavor, which means most people can’t afford to do it with the cash they have in a savings account. For most homeowners, the only way to buy a home is to take out a mortgage loan, which means making monthly payments with interest until the entire loan is paid off. These mortgage loans are generally paid off over a 30-year period, which makes the average monthly payment a little higher than the cost of rent in most areas.
When a homeowner can’t make monthly mortgage payments on the home they purchased, the bank that provided the mortgage loan may decide to repossess that house to get their money back. This process is known as foreclosure, and it typically happens to homeowners who have missed several mortgage payments consecutively. The unique circumstances surrounding foreclosed homes mean you can get a great deal on a great home sold as-is, and sometimes you can get a home with no money down.
Condition
The condition of foreclosure homes is by far the biggest reason people avoid them. Put simply, homeowners who can’t afford to make monthly mortgage payments typically can’t afford to take good care of their homes, either. There are several types of damage that are common in foreclosed homes:
- Structural damage: Spotting structural weaknesses in a home can be a difficult task, especially if nobody has been in the crawlspace or attic in a while. With foreclosure homes, structural damage is a common problem for buyers.
- Water damage: Water damage is one of the most common types of damage that occurs in homes, and foreclosure homes are no exception. This water damage may have led to the growth of mold in the crawlspace, walls, or attic, which is why a thorough home inspection is so important.
- Vandalism: Some homeowners who are upset about their home going into foreclosure will intentionally damage a home before leaving.
- Lack of maintenance: Due to a shortage of money, poor maintenance is common in foreclosure homes. Look out for signs of a poorly maintained home to make sure you get a fair price.
Maintenance & Repairs
While homeowners often repair a home before selling it, that’s not the case with foreclosures. Instead, foreclosure homes are sold as-is, which is why foreclosure buyers pick realtor and inspector teams who have dealt with foreclosures in the past. Once you purchase a foreclosure home, you’ll have to start figuring out what repairs you need to make and how you’re going to pay for those repairs.
Just because there are often repairs involved with buying a foreclosure home doesn’t mean these homes are a bad investment. Because you can buy foreclosure homes for less than market value, you’ll have leftover money for repairs while still being able to make a profit on your purchase.
A Slow Process
One of the biggest downsides to buying a home in foreclosure is the fact that the process is so slow. When you purchase a home that hasn’t been foreclosed on, it typically takes a couple of weeks to close on a home. With a foreclosure home, you may have to wait a couple of months for the closing date, which means waiting longer to get into your new home. This might not be a problem for investors who don’t plan on living in the home they’re buying, but it’s something to consider if you’re buying a home to live in.
Auctions & Cash
In addition to making sure you pick buyer agent and inspector teams who have worked with foreclosure homes, you should also understand how buying a foreclosure home at auction is different. If you’re going to buy a home at auction, you’ll need to pay cash.
Buying a foreclosure at auction doesn’t necessarily mean you need to have hundreds of thousands of dollars in cold hard cash at that very moment, but you do need to have some way to get the money. Because of this, auctions aren’t an option for many homeowners.
Make the Call
There are a few different ways to get a bigger house for your money, but buying a foreclosure is one of the smartest moves you can make. Foreclosure homes may need a little bit more maintenance and repairs, but the money you save buying a home can be put toward fixing it up. Even better, you can find yourself in a nicer neighborhood than you would have been able to afford otherwise. Just remember to take some time to scrutinize homes in foreclosure before you buy.
