Due to their comparatively low prices, foreclosure homes can be incredibly attractive to buyers. In some cases, it may be a smart investment, but be aware that many risks are associated with a foreclosed property, and buying one may cost you more money in the long run.
If you’re thinking of buying a foreclosure home, be sure to keep the following these following points in mind.
They tend to need a lot of work.
Keeping a house in good condition costs money. If a homeowner couldn’t afford their mortgage payments, there’s a good chance they couldn’t afford the expenses associated with its upkeep. As a result, foreclosure homes are often in need of extensive repairs.
The costs to fix issues like structural damage, mold, pest infestations, and faulty plumbing or electricity can add up quickly. In many cases, a foreclosure home’s low buying price may be canceled out by these expenses, making it more economically viable to buy a house on the traditional market instead.
The process can be slow.
Buying a foreclosure home requires a lot more paperwork than a typical sale, and as a result, the process can take a long time. If you need to move in a short time frame, buying this type of property will not be a realistic option for you.
Short sales tend to move incredibly slowly, as they involve communicating with a property's current owner and lender. The longer either of these parties takes to respond, the farther your closing date gets pushed back. You may also need to wait longer if the home you're buying has a redemption period.
Inspections might be inhibited.
In many cases, a foreclosure home’s utilities will have been turned off for a long time, making it impossible to inspect the house properly. While you may be able to pay out of pocket to turn the utilities back on for an inspection, this may cost you somewhere in the neighborhood of $1,000—no small price for a property you may ultimately decide not to purchase.
Buying a home without having it inspected is always a gamble, and the risk is exceptionally high with foreclosure homes, which tend to have a lot more baggage. Without an inspection, there is the possibility that you'll discover deal-breaking information about a house after it's too late.
Auctions require purchasing sight unseen.
If you purchase a home in a foreclosure auction, you’ll need to do it sight unseen. Buying a house sight unseen means closing without the opportunity to tour the property in person. While you can perform a drive-by to look at the home’s exterior and photos or videos of the interior may be available online, there is only so much you can learn about a house before stepping inside it.
Purchasing sight unseen means you’ll likely be unaware of any issues lurking in a home, especially if you cannot have an inspection done. When in doubt, assume that any potential problems a home can have may be present in the one you buy.
Any excellent deal will have competition.
A house with a low price tag will typically attract many buyers, and foreclosure homes are no exception to this rule. Foreclosure auctions almost always have multiple bidders, and the better the deal, the higher the competition.
This means you'll need to take extra care not to go over budget. Even if a home's starting bid is low, it's easy to get caught up in the excitement of an auction and end up bidding more than the property is actually worth. Be sure to limit how much money you're willing to spend, and don't exceed it.
Depending on the type of foreclosure, there might be a redemption period.
Sometimes when a home is in foreclosure, the homeowner is given a redemption period. This means they have an opportunity to pay back their debts with interest to reclaim their home—even if it has already been auctioned off.
In Texas, tax foreclosures come with an average redemption period of two years, and HOA foreclosures offer a redemption period of 180 days. If you’re buying a property that was in foreclosure for either of these reasons, be aware that until the redemption period has passed, the home’s previous owner may end up taking it back from you.
When buying a house, be cautious of a deal that sounds too good to be true. A foreclosure home may seem appealing at first, but you’ll need to thoroughly weigh its pros and cons before you commit to purchasing one. Always do your due diligence, and be sure to work with a real estate agent who has experience with foreclosure transactions.