When purchasing a foreclosed home, a lot of buyers expect the process to be simple and a guaranteed way to make money. Unfortunately, there are a lot more nuances to the value of a foreclosed home, and in many cases buying a foreclosure can come with endless headaches. So just what are the up and down sides to purchasing a foreclosure? It depends on what stage of foreclosure the house is in.
If the original owner is still living in the home and has missed payments, but is trying to sell as quickly as possible, there are numerous advantages. The reality of this type of purchase is that you are going to get the house below market value, perhaps substantially so. But there is a problem here, if the market value of the home has fallen below the purchase price, then the seller may not be able to make back what they purchased the home for, which means the sell price may need to be approved by the bank. Still, overall the advantages for this type of purchase are high, the seller will often cover your closing costs, you will be able to get inspections done, making it only slightly more complicated than a normal purchase with a significant price incentive. You will, unfortunately, still have to wait for the individual to move out. If the property is being short-sold, you will also have to deal with processing time for the bank to approve the sale, which is all the more difficult with the increased number of these homes on the market.
Buying foreclosed properties themselves is somewhat more complicated. Your purchase will have to be made in cash at the auction, which helps reduce the number of people interested in such properties, but which is a challenge for someone without access to the capital. Buying at auction or after comes with a number of other problems, homes are sold as-is and the price does not include repairs. The paperwork can be a major problem, and the bank won’t be able to give you any history of problems with the home. Of course, you are generally getting the home at as low a price as possible, but don’t expect the house to be so cheap as to be worth the trouble, only a small portion of foreclosures are worth taking the added risk.
