Purchasing a Foreclosed Home

Purchasing a foreclosed home can be a golden opportunity for people in the market for a new home. Ultra-low prices encourage renters to buy into the housing market because mortgage payments are sometimes less expensive than rent. Of course, home ownership comes with costs that first-time buyers sometimes fail to anticipate.

Buying a home is probably the largest investment you will ever make, so be a discerning shopper. A house that seems like a great deal may be priced low for a number of reasons, and these can come back to bite you down the road. Make sure you have the money necessary for repairs, especially if you are purchasing property in a poor economy. If you plan to flip the house or rent it out, make sure you can afford it if it remains vacant for some time.

Before Closing the Deal

Classified ads, television commercials and websites advertise foreclosed homes daily, and it can seem as easy as a phone call to buy a home. Never buy a foreclosed home sight unseen. Take a look personally if possible, or, if you live far away, find someone who can look for you. Pictures on a website cannot accurately convey the condition of a house or its surroundings.

Find out how long ago the house was foreclosed on. The longer a home sits vacant, the further it slips into disrepair. Neglected plumbing, electrical wiring and pest control can cause problems that will cost the new owners dearly. If the house was not properly winterized, these problems become even worse. Cracked pipes lead to leaks, flooding, electrical problems and mold.

Arrange for a private inspection. The inspector will be able to identify severe structural and fixture problems. She can also estimate the cost of repairs. This is especially important for prospective buyers who are unable to see the house firsthand.

Types of Foreclosure Sales

The foreclosure process has three steps: the homeowner has a chance to sell a home in pre-foreclosure, the foreclosed home goes to auction and the bank hands the home over to a broker. Prospective buyers can purchase the home at any stage, but there are pros and cons to each scenario. Consider the risk involved in each phase.

During pre-foreclosure, the homeowner can sell the home before the bank forecloses. You buy directly from the owner, which means you can usually tour the property and know what to expect when you buy. You acquire the mortgage, and you are responsible for any back-payments, but the house often sells at a pittance so the costs are balanced.

The downside of buying a pre-foreclosed home is approaching the owner. Foreclosure is a distressing time, and the family may be facing financial ruin. They may not even know that their house is publicly listed. Buyers should not feel guilty for buying foreclosed homes, but they should approach the transactions with sensitivity to the sellers' situations.

Buying a house at auction is the riskiest scenario. The prices are often the lowest, but you may be competing against experienced buyers and voracious investors. Buyers must pay on the spot, and the house sells as-is. You may not have an opportunity to see inside the home. In the worst case scenario, the former owner simply will not leave, in which case eviction is your responsibility.

The third phase is to buy a real estate-owned property. The bank usually hands over a foreclosed property to a broker. This is the safest option for purchasing a foreclosed home, but also the least financially rewarding. The buyer gets all the benefits of buying traditional real estate: inspection, a tour of the property, a clear title and the opportunity to secure a mortgage.

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