Many aspiring homeowners entertain the idea of purchasing a foreclosed home in the hopes of getting a good deal on a house. But what they don’t know is that buying a foreclosure is more challenging than it seems, especially if they don’t know what they’re in for. From competing with foreclosure flippers to shouldering expensive repairs, there’s plenty of things you need to know before you sign your name on the dotted line.
Here’s what you need to consider if you plan to purchase one so that you can get your money’s worth.
You should pay with cash or get pre-approval for a home loan
A majority of foreclosed homes aren’t in good condition, which makes it difficult to find lenders who will finance a purchase of a foreclosure. This is why most of these kinds of homes are bought with cash. However, if you’re unable to pay out-of-pocket, you can still fund your purchase through a conventional loan from a mortgage lender, bank, or credit union. You just need to ensure that you get pre-approved for a home loan early on to expedite the process.
You need to work with a reputable real estate broker
Seek out a reputable real estate broker who deals specifically with banks that own foreclosed homes. They’ll be able to get you the best deals, prioritize your interests, and essentially do all the work for you. This will reduce the risk of you ending up with a property that will cost you more in the long run than what you paid for upfront.
There are two ways to buy a foreclosed home
You can buy a foreclosed home either at an auction conducted by a government agency or by purchasing it from an insurance company or a bank. Buying a foreclosure at an auction is quite difficult, as you’ll be competing with experienced real estate investors. You’re also required to pay with cash and you won’t have the opportunity to tour the property itself until it’s already in your possession.
Buying a bank-owned foreclosure is a much simpler process. All you need to do is make an offer as you would with a traditional property sale. The real estate agent acting on behalf of the bank will present your offer to the bank, and return with a counteroffer if your offer is declined.
The cost of repairs can outweigh the cost of the property
Although you pay less for the property itself, you might end up spending a significant amount of money on structural and cosmetic repairs. When touring the property, assess the condition of the home thoroughly. Think carefully about what repairs and renovations need to be done, and how much you might expect to spend for them. You might just realize you’re not getting a great deal after all.
Home inspections are necessary
Hiring a home inspector to accompany you during your tour of the property will help you determine whether the home is worth the sale price. They’ll be able to tell you honestly just how much work is required on the home. You should never purchase a property without having it thoroughly inspected first.
Buying a foreclosed home requires just as much thought and consideration as purchasing a traditional property if you want to get your money’s worth. If you do your due diligence, you could end up with a beautiful home without having to pay a hefty price for it.