Should You Buy That Low Priced Foreclosure? With so many communities topping out in pricing, more folks are looking at alternatives to obtain housing. For most, if they can move into a livable condition a foreclosure might be a good choice. Gradually repairing the house as funds become available could be helpful. The investment could bring in a fair profit if sold down the road. Theoretically a plan like this can be workable if the buyer’s mindset can be maintained to tolerate incomplete projects for a while.
Understanding what risks are involved with purchasing a foreclosure property is important. These type sales occur to allow a lender to recuperate some of their funds when a consumer can’t fulfill the terms of the mortgage. It isn’t as simple as it sounds. During the early beginnings of a pre-foreclosure would be the best time to purchase. During this time, the house still is in the owners name. The owner has right to sell the property at a lower price as long as it covers the cost of the balance. You may get a more reasonable price because the owner wants the home sold quickly.
There are draw backs though. In most cases the owner sells the house at a lower price. However, with the owner’s current finacial difficulties these type sales are usually sold “as is”. That means any repairs or items that need attention most likely will not be fixed. Seller may not pay for home warranty coverage either. Some buyers think that they can pay for the home warranty themselves and get items fixed this way. However, home warranty companies have changed what used to be acceptable. For example many of the home warranty companies now require an inspection report review before they will cover claim requests. This is to make sure the item wasn’t already inoperable or irreparable at the time of purchase. If that is the case your claim is usually denied. Make sure you have funds to do the repairs!
Another option used after the “pre-foreclosure” period ends is a lender may allow a short sale to occur. Usually the property will go to a public auction for sale. The lender usually has the property evaluated by a professional in the industry. Doing this gives the lender a clearer view of what the current retail value of the home is. Usually, the bank will take this figure and deduct the estimated cost for any repairs needed. What ever the residual is, the bank uses this number for the starting bid or in some cases a little less depending on the demand where the property is located. Essentially the winning offer may save a little on the cost of the house. However, the cost of the repairs that were deducted will have to be paid by the new owner. Repairs would be pertinent to be similar to houses in the neighborhood if the house is resold.
One misconception is houses that “look” good and appear to be in very good shape the should be a winning situation. Statistics show that this is something that occurs occasionally but not too often. Remember during the process an evaluation of the property before selecting a foreclosure price is completed. This means the savings are usually just enough to prompt a quick sale of the property to recoup the residual of the outstanding loan balance owed. Keep in mind the banks now can make a profit unlike years ago when they could only resell homes for the amount that is owed along with what ever legal costs are involved to sell. Banks can and do get the properties evaluated to resell them at the current retail value. This is even if the residual loan balance owed is only a small amount of the selling amount.
With the changes in the foreclosure process, getting a bargain is much less likely than in the past. If you are truly interested in buying foreclosure properties, here are some things to consider. What is the maximum amount the market value can be if all repairs and updates are completed? Once repaired and updated will invested money be more than the current market values in the area for similar houses? If I do not have cash to buy, will I loose the savings of a foreclosure in interest paid for lending? How much will the legal costs be to get a clear title if there are complications? Will you be able to live and endure the unfinished space while renovating? These are just a few considerations before determining if foreclosure purchases are for you. Banks often have additional fees the buyer must pay to process these type transactions, so checking these first before agreeing to buy is important.
Most importantly, anyone buying a foreclosure should make proper legal agreements to avoid being stuck in a forced sale should the buyer change thier mind. Be prepared for long documents outlining the terms of the sale from the bank to you. READ THEM THOROUGHLY to make sure you know what you are agreeing to or if you have any additional cost that could be incurred.
For most, foreclosure sales aren’t great options unless you learn of them before the bank takes possession of the property. Usually these are listed by local agents on behalf of a distressed seller. These properties usually can be purchased traditionally with minimal difficulties and risks. If you are a first time buyer and are not familiar with the home purchase process starting with a foreclosure may not be a good choice for you.
To buy foreclosure properties lending funds must be in place. Click HERE to meet a lender that has successfully assisted some of my clients.