What You Should Know Before Buying a Foreclosure

When you’re searching for a new home and want to find a bargain, a foreclosed home seems like a great option. You know that foreclosures are typically sold for less than market value; but what you might not know is there are many challenges that can come with a foreclosed home. Below are some points to consider before jumping into the purchase of a foreclosure.
1. There are two ways you can buy a foreclosure.
One way you can buy a foreclosed home is through a public auction held by the lender after the owner stops paying his or her mortgage. The second way is by buying the property after the bank takes ownership, purchasing the home just as you would purchase a traditional home on the market.
2. Buying at auction isn’t easy.
Remember – there are people that do this for a living. Outbidding professional real estate investors who buy, repair and sell foreclosures will surely be a challenge. Additionally, you will need to pay for the foreclosed home in cash. Not many people have that much cash lying around.
3. Foreclosures up for auction are sight-unseen.
When purchasing a foreclosure during an auction, you are unable to tour the home and have to buy it sight unseen. This means you need to be prepared for potential damage. To make the home livable, know that repairs could possibly eat up any savings on the sale price – but that’s a risk you must be willing to take with a foreclosure.
4. It’s much easier to buy a bank-owned foreclosure.
When a bank takes ownership of a home after the former owner stops making mortgage payments, the bank sells the home and hires a real estate agent to close the sale. With a bank-owned property, you can make an offer just as you would with a traditional home for sale. The agent representing the bank will present your offer to the bank and come back with a counteroffer if the bank disliked your initial offer.
5. A home inspection is necessary.
With a bank-owned home, you have the right to a home inspection before closing your sale, unlike a foreclosed home bought at auction. Definitely take advantage of this opportunity and hire a home inspector to do a walk through. This will help you identify any serious damage and decide if the home is worth the purchase.