Foreclosed homes are homes that have been repossessed by the bank due to the owner’s inability to pay the mortgage payments on time. For the savvy homebuyer, these foreclosure homes can be an excellent real estate strategy and a nice friend to your wallet. But just like anything that seems like a good opportunity, it’s important to also do your research. Before signing on the dotted line, take a look at the pros and cons of this kind of sale.
Past Due Payments and a Motivated Seller
When a seller has defaulted on their mortgage payments, they’re more likely to give a bargain on the price just so they can sell the house faster. Even better, the seller may be open to paying for repairs or make any other concessions. In addition, buyers can still follow through with regular mortgage payments, get an inspection completed and receive an entire history of the property. One of the disadvantages is that the seller still has to move out and may not negotiate a price below the outstanding mortgage.
Pre-foreclosures: Short Sales, Notice of Default
In this scenario, the seller is highly motivated, and the buyer can still perform all standard inspections prior to purchase. However, short sales can be tricky. If the purchase price is lower than the outstanding mortgage and closing costs, a lender will need to approve the conditions of the sale. Short sales usually take around 45-90 days to close, delaying the move-in date. Buyers will also need to wait for the seller to move out.
The auction price of a foreclosed property is always lower than the market value and will total the outstanding payments left on the mortgage. Buyers can snag a property with cash, limiting the number of prospects interested in the sale. A major downside here is that the buyer will not have the opportunity to view the property ahead of time. Once the sale is final, the buyer must take the home as-is. This also means that the buyer won’t know the full history of the house (repairs, liens, etc.) until they have purchased it. Lastly, a buyer must pay their own legal fees and representation to close this deal.
Post-foreclosures: Bank-Owned Properties
If a purchase deal isn’t made in time, foreclosed homes become bank properties, which can be a sweet deal for a buyer. Banks don’t want to hold on to properties for too long and are quick to sell at a low price. The title will also be wiped clean of any outstanding liens or back taxes, and inspections can be performed during the due-diligence period. Banks are so motivated to sell they will also pay any real estate commissions. The downside here is that the bank will not pay for any repairs that are needed in the home. They also won’t be able to provide property history and usually require a few more pieces of paperwork than regular sales transactions.
Got your eye on a foreclosed home? Get in touch with one of our expert mortgage lenders today and make your purchase a seamless one.