Buying a foreclosure can be scary. It is almost always intriguing. Neighbors, real estate agents, investors and potential buyers are all curious. Is the home a diamond in the rough, a bargain, a nightmare or a combination of all of those? I've seen the full gamut in condition: from excellent and move-in ready, to needing paint, flooring, plumbing repair and appliances, to mold growing all over the basement floor and walls.
I always advocate being an informed buyer, and a foreclosure is certainly not an exception to this rule. Not only does the condition of the home matter, but so do title defects, possible insurability issues and all the "consequesnces" that you cannot see from a visual inspection alone. It's a good idea to spend $300 - $500 for a qualified home inspector with a good reputation. It's also wise to speak with a licensed contractor to get an idea of any potential repair costs.
Know your financing options as you sort through the foreclosure options. You'll be looking at several homes and some of them may need repairs. it's imperative, before proceeding with a purchase agreement, to know the home is in good enough condition to be financed, as lenders will not give a loan on a home deemed unlivable. That is UNLESS you plan to avail yourself of FHA 203(k) financing. Learn more about that option here: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou
With that in mind, be sure to work with a mortgage professional who understands foreclosures and has a myriad of financing options available should your dream home need some work to bring it back to an acceptable condition. Don't worry - even if the home seems unlivable in its present state, you can get your dream home for a great price with a little planning and the right loan program.
Working with the listing agent is not always the best option. If ever there was a time for your own agent representation, it is on a foreclosure purchase. Find a knowledgeable buyer's agent who can help you understand the benefits and pitfalls. Contact me for a list of good agents who DO understand this process.
Benefits: There are some great benefits that can be had when purchasing a foreclosed home. The sales price can be less than the fair market value (often significantly less). The condition can be better than you expect. Sometimes little or no work is needed. Other times, the work needed can be failry minor and cosmetic in nature so that a little sweat and a trip to Lowes or Home Depot is about all that's needed to bring the shine back.
Pitfalls: There can be some doozeys. On occasion, the pricing on a foreclosure is higher than similar properties which are not foreclosures. This can be due to the added costs the banks assumes in legal fees, maintenace and taxes. The title also needs to be clean or you may have problems with financing or selling the home in the future.
The condition of the property can be worse than you expect. Some former owners have put off maintenance or even vandalized the home, stripping the home of its essentials: cabinetry, mechanical systems, copper pipes, bath fixtures, lighting and even flooring. Foreclosures can also sit vacant for awhile, causing a minor problem to blossom into a major one because there's no one in the home to catch the issue before it tuns into a big headache. The repairs needed can be extensive, sometimes even structural.
Before you proceed, make sure the foreclosure you're considering is the right home for you. If you do not get the contract on one, something else will come up. There are numerous foreclosures on the market today and you can easily find them through lists like http://www.watchforeclosure.com/. Just Google "free foreclosure lists" and see how many entries come up. Most important though is to work with the right team of seasoned professionals - real estate agent, title company, mortgage lender and home inspector. You can buy a great foreclosure home!