The 4 Most Costly Dangers of Buying a Foreclosure - and How To Avoid Them
Are you considering buying a foreclosed home, or a home that has been repossessed by a mortgage lender? If so, you're not alone. Purchases of foreclosed homes are up more than 150%, according to a recent 2022 U.S. foreclosure report.
Many homebuyers are tempted to buy a foreclosure because it’s seen as a way to essentially get a great home at a bargain price. But the process is more complicated than it may appear—and that seemingly cut-rate deal may not save you as much money as you anticipated.
Here’s the 411 on buying a foreclosure, what the purchase entails, and the risks you should watch out for so you don’t end up with a money pit on your hands.
How to find and buy a foreclosure
Finding a foreclosure is very similar to the process of finding any other home for sale. Many foreclosed homes appear on home listing sites, or you can look slightly more extensively and find some hidden gems.
You can typically find foreclosures if you just Google the name of your county and your state, alongside the search term ‘home foreclosure.’
Another option is to call your county clerk and ask them where to find the next foreclosures coming to auction. When foreclosures are sold in an auction format they can occur in person, at a government building, or at the site of the property.
A local real estate agent can also help you find and purchase a home in foreclosure.
Found a house in foreclosure? Go check it out
It’s one thing to see a fantastic house at a bargain price online, and it’s another to see it in real life. It is a must for potential buyers to look to immediately drive by the property and inspect the home and entire neighborhood as best you can from the street.
Typically, you cannot have a foreclosed home inspected before auction if it’s being sold as is. Plus, different federal and government agencies have their own pre-inspection policies.
But if you’re serious about buying a foreclosed home, do try to inspect it before placing a bid. If that’s not possible, do your due diligence by visiting the property and researching the surrounding area and community. A real estate agent can help you with this.
Watch out for cash requirements
When buying a foreclosure you typically end up getting more house for your money, but you may need o forgo a traditional mortgage to do so.
Before going to an auction, read the rules. Some will require an all-cash purchase, and often, 10% cash down is required at the sale. You’ll generally have up to 30 days to repay the rest. You’ll need to go in with a game plan, and you know how you’re going to pay for a winning bid.
And beware of bidding more than you can afford - auctions can get exciting, so make sure you go in with a solid budget that you will not exceed.
Watch out for a lengthy eviction process
Home foreclosures come with hard feelings, and the previous owners ma not be ready or willing to leave.
You may have to endure a lengthy eviction process if the former owner or tenant will not move out peacefully. Be sure you know your state’s foreclosure laws and local jurisdiction norms, and be prepared to pay for an inspection, title search, and attorney as quickly as possible.
Watch out for potentially pricey repairs
You may well be facing down a long list of repairs when you purchase a foreclosed home. Chances are, if the owners couldn’t afford their mortgage, they might not have been able to afford basic upkeep either.
Foreclosures can also sit unoccupied, without electricity, for months. These homes are typically in total disrepair with little-to-no upkeep. And you can’t bank on the lender providing disclosures about the quality of the foreclosure.
With these issues in mind, it is recommended getting a thorough home inspection from a licensed professional (if it’s allowed). This will allow you to assess if you’re willing to take on the risks and will pay special attention to the quality of the structure of the home, the roof, the suite of appliances, as well as the signs of pest and insect infestations.
Watch out for mold
One common issue that home inspectors miss in foreclosures is mold.
Because the home has been preoccupied and in a state of questionable repair, microscopic mold growth may exist on the walls and all common surfaces within the residence. One way to potentially find mild is to use a white glove and simply swipe random surfaces. Although you may not be able to see anything visually under normal conditions, you are more likely to see any residue that may be collected on your finger and this can be used as an indication that mold may have developed. A more thorough evaluation by a mold assessor would be warranted at this point.
“The 4 Most Costly Dangers of Buying a Foreclosure—and How to Avoid Them.” Real Estate News & Insights | Realtor.com®, 2 Sept. 2022, www.realtor.com/advice/buy/costly-dangers-of-buying-a-foreclosure/.
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