8 Crucial Things You Need to Know About Buying Foreclosure Properties
The COVID-19 pandemic and nation-wide government shutdowns have brought record levels of unemployment to the United States. As such, more and more American homeowners will fall behind on their rent and mortgage payments, leading to a higher number of foreclosed properties on the market.
Although this is an unfortunate circumstance for current homeowners, it may be a lucky break for those who have never been able to afford the downpayment on a home. 2021 may be the perfect year to capitalize on some of these great home deals. Read on to find out some of the pros, cons, and must-knows before buying a foreclosed property.
They’re Relatively Easy to Find
Particularly in the current market, there are quite a few ways one can find foreclosed properties. In reality, foreclosed properties can be searched for and found just like any other home. Websites that specialize in home sales, such as Zillow or Trulia, list foreclosures just like any other home on the site.
You can even conduct a special search specifically for foreclosed properties. There are also sites that specialize in foreclosures. You can also check out bank websites and newspapers, or ask your real estate agent if she’s aware of any properties in the areas that you are looking at moving to.
You May Be Able to Get a Good Property at a Good Value
A foreclosed property is likely to be a much better price than buying a move-in-ready home straight from the homeowner, and fixing the issues may be a lot cheaper than buying a property with no issues (similar to buying a new house versus buying a plot of land and building it yourself). You also have the added benefit of being able to customize the home to your own liking.
It may be even cheaper if you have the necessary skills to fix it up yourself, instead of hiring a contractor. And, if you have the funds to purchase the property but not to conduct the renovations, there are also renovation loans from third-party companies such as Fannie Mae that you may be able to capitalize on.
It May Be a Lot of Work
If you want to save money on hiring professionals, the physical labor needed to repair the home yourself may be intense. Although there is the possibility – especially in the current situation – to obtain a home with very few repairs, typically, if people couldn’t afford to pay their mortgage, then they also couldn’t afford to conduct repairs or regular maintenance. And even if you do hire others to do the work for you, the entire process of obtaining the foreclosed home itself may be long, complex, and difficult.
You Will Need to Invest in a Realtor & Inspector
But not just any realtor or inspector: you’ll need one that specializes in foreclosed properties. Inspectors and realtors who don’t have specialization in foreclosures may not know the caveats and complexity of the process and may misadvise you. There are specialized foreclosure certifications some realtors can obtain, and you can always ask your inspector whether they’ve worked with foreclosed properties before.
Additionally, you’ll want to work with your realtor to write a contingency plan that will allow you to break off the deal if you find out that the home repairs are too much for you (either physically or financially). This simple step can turn the purchase of a foreclosed property from a high-risk situation to a low-risk, high-reward gamble.
Banks Typically Won’t Negotiate
When you buy a home directly from a homeowner who’s not currently engaged in a financial crisis, you can often negotiate the price with them if you find issues with the home or if you know the house has been on the market for a while. However, banks typically will not negotiate, and foreclosed properties are usually sold as-is. That means “take it or leave it”; you can get the house inspected, but if you find out that there are more repairs than you bargained for, this is the price of the home, and if you don’t want it, don’t buy it.
It Takes Longer
There’s a lot of paperwork and bureaucracy involved in the foreclosure sale process, so it can take a lot of time. Additionally, even once the home has been acquired, it may take a long time to get the house move-in ready, depending on the number and complexity of repairs.
In any part of the foreclosure process, there is additional paperwork and agreements that must be made with multiple parties before a home can be sold. The time may also be extended if you need to secure a loan, if the seller settles their debt and tries to reclaim the house, or if someone attempts to negotiate something along the way.
There are Multiple Steps in the Foreclosure Process
The steps in the foreclosure process typically run as follows: pre-foreclosure, short sale, auction, and real-estate owned (REO). The easiest and safest route to purchase a foreclosed property is after it’s been obtained and sold by the bank (during REO). This gives you the lowest risk and the longest time to perform a title search, inspection, and contingency plan.
However, buying a home pre-foreclosure or during the short sale can be the cheapest. Buying at auction may also be cheap but comes with significant risks. You will likely be competing with professional house flippers, you’ll need to pay in straight cash upfront, and you won’t be able to see the inside of the home or perform an inspection before purchasing.
You Will Need to Invest in an Inspection and Title Search
If given the opportunity, investing in an inspection is a must-have to lower the risk of purchasing the property. The inspector can tell you if the repairs needed are even worth the decreased value of the home. As stated previously, however, you’ll need an inspector that specializes in – or at least has experience with – foreclosed properties.
Additionally, you should invest in a title search. This will tell you if there are any liens, or debt, attached to the home. In the case of foreclosures, this debt will transfer to you once you purchase the property.
In conclusion, purchasing a foreclosed property may be a low-risk, high-reward situation if you take the right steps. It also may be an incredible opportunity to purchase a customizable home at a great value. The buyer should, however, be aware of the risks, the process, and both the pros and cons of owning a foreclosed property before proceeding with the purchase.