Interest rates are low and home prices are rising. The availability of houses for sale, particularly new construction, is limited as we are now in what is known as a “seller’s market.” Real estate agents and potential buyers are finding ways around COVID-19 obstacles. When you are looking for options for your next home, you may be considering a short sale or home that is in foreclosure. If you’re asking, “should I buy a home in foreclosure?” you will need to consider all of the pros and cons and decide which is the best option for you in your current situation.
Lower Purchase Price
When the homeowner fails to make mortgage payments, the bank forces the sale of the home and that is known as a foreclosure. The bank will typically try to sell the property in an auction so it can recoup its money quickly. However, if the auction sale fails and the lender has to take the property back, it then becomes known as real estate owned property.
The lender will be eager to unload the home and a potential buyer might be able to negotiate a foreclosed property’s purchase price down. The bank will usually be trying to get back the money it lent to the owner, plus a small profit when possible. When you buy a home in foreclosure you may be able to pay less than you normally would for a similar home.
A home in foreclosure may have been neglected, either by the owner who could not make payments or by the amount of time it has taken for the bank to go through the foreclosure process. There will be work to be done. You may have to make repairs or do a deep cleaning of the home. This means, though, that you will have less competition from traditional buyers.
In today’s market, you may find that by the time you decide to buy a house, there are already several offers on it. With a home in foreclosure, that is generally not the case. In fact, almost half of first-time buyers want a turnkey home, so they won’t want the additional work associated with most foreclosed properties.
Buy As Is
When a home is in foreclosure, that usually means the owner could not afford to make the mortgage payments. That also may mean that the owner couldn’t afford the upkeep of the house, particularly if it needed repairs. A bank that reclaims the home is not going to make repairs so it will be up to you, when you buy it, to do that work.
A home in foreclosure is sold “as is.” You can get a home inspection before completing the purchase, but unlike with traditional home sales, the bank is not going to address any issues that turn up on the inspection. You will not be able to make the purchase of the home contingent on anything being done on the bank’s part.
Potentially Not a Good Deal
The idea that a home in foreclosure will always be sold below market value is not necessarily true. While you may be able to pay less for the home in foreclosure, some actually go on the market for more than they’re worth. The bank is going to try to get its money back, so if there is more owed on the mortgage than the home is worth, that will be the number they’re using as their sale price. You may be able to make a lower offer if the home has been on the market for a while. Do your homework first, though, to check out the comparable properties in the neighborhood.
A Longer Process
Buying a home in foreclosure from a bank can be a lengthy process. Banks are known to take their time even considering the offer and then may be slow in processing the paperwork after accepting it. They may have a backlog that will delay the closing as well. If you need to close on a home quickly, then the decision as to whether to buy a home in foreclosure may be an easy one for you.
Short Sale Option
Another option is to purchase a home from the owner directly, before it goes into foreclosure. When you buy a home in a short sale, you might only have to pay the amount of the remaining mortgage balance, which could certainly be a deal. Depending on how much the balance is and how much the home is worth, you may be able to buy the house below market value.
Call Fox Moving & Storage Chattanooga for Helping Moving to Your New Home
Our professional movers are ready to help you with your next move, in the Chattanooga area or across the country. We have the expertise and the experience to safely move you and your possessions to your new home. We also offer new, clean moving boxes and packing materials when you want to do your own packing. Call us at 423.451.8584 for a free, no-obligation quote!