Buying A Foreclosed Property

There is a lot of hype around buying a foreclosed home. Late night commercials talk about the advantages of buying a foreclosed home for pennies on the dollar. However, buying a foreclosure is not as simple as it is made out to be. If you are looking at attempting to buy a foreclosure property, there are some major points to keep in mind.

This home likely has some baggage.

Most homes that go into foreclosure are not well maintained, loved homes with wonderfully attentive owners that cared for the home before the bank retrieved it. The people who owned it were likely on hard times, otherwise, they would probably still own it. They did not have the money to pay the mortgage, let alone upkeep the home. These homes have sometimes been vacant for extended amounts of time, increasing the likelihood of squatters, damage, and disrepair. When a home gets foreclosed, it is not abnormal for there to be hard feelings from the previous owners. Some people will destroy parts of the home in retaliation for the foreclosure, leaving the home even further into disrepair. It is rare that you would walk into a perfect home that is ready and waiting for you.

Banks don’t mess around with repairs.

Are you figuring you will just ask the bank to cover the necessary repairs? Think again. Banks will almost always sell a home in as-is condition and it will be up to you to figure out repairs. They know little to nothing about the home and depending on your state, won’t be required to give you any information specific to the condition. Don’t expect that repairs will be credited or performed to meet your wishes.

Get a thorough inspection.

Going back to the disrepair and damage idea, you will need to have a VERY thorough home inspection performed by a professional with experience in evaluating foreclosures and vacant properties. Vet the inspector and make sure to attend the inspection as well so inadequacies can be explained in detail. Do not look for the cheapest home inspector you can find. When you are spending the money on a home, shorting a couple of hundred dollars on the inspection is not a good idea. Get the best you can and expect to find issues.

Not all financing will work.

If you are competing in an auction, be prepared to be up against investors with cash in hand or on tap. Trying to get an FHA loan is unlikely to fly. Different auctions will have different rules and loans they will allow (or not). Also, keep in mind, different loan programs have guidelines in place as to the condition of the property. They are trying to protect their investment and don’t want to invest in a property that is not saleable. Some loan programs are more strict than others, so be very aware of your financing options going into the process. If you are fortunate enough to be going into the buying process with cash, do your homework on the cost of the home vs. the cost of repair (always pad the amount of work you will need to do up) in comparison to what homes in the area are selling for. Your great deal could turn sour very fast without the proper research and planning.

There is potential for a great deal in a foreclosure property. There is something to be said for grabbing the right foreclosure property at the right price and nailing a score of a deal. But buying a foreclosure is not for the faint of heart or those without funds to back it up. Keep up with the market and do your research and due diligence to ensure you are really getting the deal you think you are.