With foreclosures on the rise in recent years, some buyers think about them in terms of "opportunity" rather than for the risks associated with them. Think long and hard before you get drawn into buying a foreclosed home, especially if it is your first home.
What exactly is a Foreclosure?
If a home is in foreclosure, the bank takes ownership of the home after the buyer is unable to make payments. This process is initiated by the lender. The lender will force the sale of the home in order to try to recover as close to the original loan amount as possible. The foreclosure process typically takes less time than a short sale because the lender is trying to liquidate the home as quickly as possible.
Interested in buying a Foreclosed home?
Be sure to weigh the pros and cons of buying a foreclosed home to make sure it's the right opportunity for you and your family. Owning and maintaining any home is a big responsibility; imagine if you purchased the home with all kinds of issues. It helps to have a clear understanding first about the true costs associated with owning a home - beyond the monthly mortgage payment. Remember, the advice of professionals is highly valued when you're dealing with these kinds of properties.
- Get help from Experienced Professionals. To avoid costly mistakes, get help from experienced professionals who know the foreclosure system well. A competent realtor will have the system in place connecting all the professionals together (loan officers, home inspectors, appraisers, investors, contractors) in order to make the sale happen.
- Evaluate Your Financial Situation. A foreclosed property typically comes with more than a few defects - leading to unexpected expenses.
- Judgments or Liens. The foreclosed property may have come with the title encumbered by judgments or liens that you may have to pay off in order to complete the purchase.
- Leverage the Equity in Your Home. If you have solid equity built-in to your primary residence, you can use the existing home equity to cover foreclosure purchase costs.
- Have Cash Available. Having cash available as well as having a low debt and outstanding credit are absolutely necessary for your foreclosure venture.
- Analyze the Market. The heavy concentration of the foreclosed properties in the same area is usually the sign of a declining market with the inherent risk of property value going down.
If you're interested in investing in foreclosed properties, be sure you run all the numbers right. In areas where there are bargain foreclosures, home prices may not bounce back for awhile. Consider renting out the property until the market returns in your in favor.