Can’t find a home to buy at an affordable price? That’s okay! You are not the only one who dreams of having a house, but doesn’t have the budget for it. Luckily, you can always look into foreclosure homes. These homes are put up for sale at a cheaper price, but there are drawbacks to these homes. You might not find the home in the best condition and it might take a while to actually buy it. The home-buying process is generally longer than the standard home-buying process. Let’s find out more about these kinds of homes and what you can find out about them!
Want To Know More About Foreclosure?
Lenders put foreclosed homes for a cheaper price since borrowers weren’t able to keep up with their mortgage. That’s basically how foreclosure homes become available! Along with the cheaper price, there might be additional discounts that homebuyers can benefit from. You will find cheaper down payments, less closing costs, and lower interest rates that come with these types of homes.
These properties are sold in its “as-is” condition, which puts them up for sale at a reduced price. If someone cannot repay their mortgage, then it will probably be hard for them to keep up with the home’s maintenance. This is an important aspect to consider when you are looking into these kinds of homes. You will probably be responsible for paying any repairs or damages to the property when you buy the home.
A home going through foreclosure happens when a bank or lender takes over and owns the home due to the borrower not being able to pay off their debt. Once the borrower leaves the property, the bank takes back the home to the housing market and tries to recover any financial losses by putting it up for sale. Lenders can be a mortgage company, while a borrower is usually a person that is living in the home.
Looking for Homes That Face Foreclosure and The Different Kinds of Properties
There are many sources to find foreclosed homes, which includes newspapers, online searches, websites that offer multiple-listing services (MLS), or through real estate agents. However, you will need to dig a little deeper in the home’s description to find out whether or not the home is facing foreclosure. It is not common to find out that the home faced foreclosure in the listing title. When you are considering different homes that went through foreclosure, you will find five different kinds, which are:
- Homes That Face Pre-Foreclosure
- Buying Directly From The Bank
- Properties that Belong to the Government
- Short Sales
- Buying Homes from Auctions
Homes That Face Pre-Foreclosure
One type of homes that buyers will come across are pre-foreclosures. These properties are popular because they are usually much cheaper than the standard price of a home. On top of that, homeowners are also likely to be trying to sell their home as soon as possible. That’s because those that are staying in the home get a letter that the process of foreclosure has begun. When a borrower is informed that the lender filed a default notice on the home, the property is a pre-foreclosure home. To try and get out of their current situation, they are likely more motivated to sell the property quickly (which is nice for the buyer!).
Buying Directly From The Bank
If you do not want to attend auctions and go through the hassle, then you can always buy the home from the bank. When no one buys a home through an auction, it returns to the bank as a real estate-owned (REO) property.
Properties That Belong to The Government
Brokers that are registered in the government are responsible for selling these kinds of properties, which is why you should contact them for more information. Also, the HUD website can help you look through available repossessed properties. If you are wondering what repossessed properties are, then you should know that they are properties that the government possesses. However, it is only when a borrower bought the home with a loan that the federal government backs, like an FHA or VA loan.
Short Sales
Make sure that you consider some factors before you jump into buying a short-sale property. If you are wondering what these factors are, then we are here to tell you! The purchase process for short-sales resembles the standard home-buying process, except for two things. These two things would be the language of the homebuying contract and how long it takes for the short-sale process to take place. If you want to find these kinds of homes, then you can find them as pending bank approval homes.
Basically, a short sale is when a lender allows a lower amount for a property than the mortgage. If the lender allows it, then the borrower needs to show the lender that their financial situation is declining. That doesn’t necessarily mean that the borrower needs to default on their loan. How can the borrower present evidence that they are financially struggling? They can show documents like losing a job or so.
Buying Homes From Auctions
When researching homes, you might come across a sheriff sale. Managed by law enforcement, sheriff sales happen when a lender is looking to get repaid fast . For example let’s say you’re the borrower. You’re no longer able to afford your mortgage due to life circumstances. The lender has notified you of the default in your payments and allowed a grace period to catch up. Since not being able to pay in due time , the home is now no longer yours and will be placed on a Sheriff’s Auction. The home will be auctioned most likely at a courthouse or official building, won by the highest bidder.
Drawbacks of Buying These Kinds of Properties
Similar to buying anything, you will find both good and bad things about foreclosure homes. The main attraction of these homes is its price, but what about the disadvantages of these homes? Some of these disadvantages would be:
- Damages to the property
- Competitive markets
- Unseen costs
- Purchase process takes a while
Damages to the Property
As we mentioned above, you get the home in its current condition. In some situations, the previous owners might not have taken the news well and damaged the home. Now, you might find other damages that come with these homes. The bad news is that you will need to pay for them and fix up the home yourself!
Competitive Market
Did you know that these kinds of homes get a lot of attention? It’s true, foreclosed homes could have a lot of bids when several people are interested. Even though deals on these kinds of properties could fall through You should stay updated on the market when looking to purchase, and be aware of the prices as you bid. The home might get sold for more than it’s worth.
Unseen Costs
Homes that face foreclosure can be tempting and that is why you need to keep track of any unseen costs that might come along with these homes. Furthermore, you should be cautious about these kinds of expenses, since you cannot buy the home until you pay off all of the expenses. Unseen expenses like back taxes or liens can result in more costs for a possible home with damages.
Purchase Process Takes a While
While you are buying the home, you might find that the foreclosure takes a while and requires a lot of documents. Also, you might find it hard to get financing for the home, if your home appraisal value is low. This can be hard to plan for given that the properties are sold as-is! Things that you may not be able to see like damaged appliances, structural issues, etc., can result in more headache once the home is yours.
Bottom Line
Homes that go into foreclosure are a fantastic opportunity to consider when buying a home. It is important to remember that each process to buy these kinds of homes will differ based on its type. However, there might be more options out there than you think when you are looking to buy a home!
Typically, these residences are less expensive than the majority of typical homes. There might even be downsides to these kinds of properties. That would include damages to the home, a long purchasing process, and then some. Typically, there are five common categories of homes that experienced a foreclosure, including:
- Homes That Face Pre-Foreclosure
- Buying Directly From The Bank
- Properties that Belong to the Government
- Short Sales
- Buying Homes from Auctions
These homes are a great way to buy a home at a cheap price, but prepare yourself, you might have to roll up your sleeves and get your toolbox ready!