Purchasing a home in foreclosure or that has been foreclosed upon can be a good way to purchase a home at a good deal.
So, why are foreclosed homes cheaper than those sold traditionally?
The biggest selling point of a foreclosed home is that it is most often listed below market value. Many times this price is a significant amount less than other homes in the area of comparable size in the same “neighborhood.” In some areas, buyers can couple the lower prices with savings incentives like lower down payments on a mortgage, a lower interest rate, or not having a required appraisal, as well as savings on some closing costs as a way to get buyers to consider these properties.
What is the reason for these deals and discounts? If the property is a pre-foreclosure or short-sale (both considered types of foreclosure properties) the owner is in a race against time to avoid having a foreclosure on their credit report and dealing with the long battle ahead to get back on their feet. They are looking to sell the property quickly and get what they can to help settle the issue with their lender.
If the property is under actual foreclosure it is now in the sole ownership of the lending bank. At this point, it is auctioned off by the courts. This is usually conducted by the local sheriff’s office. Law enforcement has no emotional ties or interest in holding onto the home for more profit. They simply want to get the job done of selling the home to the highest bidder. The bank is interested in getting the home off of their hands so it ends up costing them as little money as possible.
If a property is not sold at the auction is becomes the responsibility of the bank’s REO (real estate owned) department to sell. This means that the property has become more of a pain by sitting without a homeowner making the payments on the loan they issued, and without an interested buyer to help recoup some of those losses. The longer a home sits and the more REO properties a bank possesses the more likely a bank is willing to negotiate a lower price.
Though foreclosed properties can be a good deal for buyers, there are a few things to consider before making the leap to find a deal on a home this way.
Many foreclosed properties are in need of repairs: this means using a larger amount of money to fix the home up and make it into what you want it to be. So it could end up evening out to the price of a turn-key home. It could also mean getting a home that is designed exactly how you want it.
It is a Slower Buying Process: in all of these situations, the lending bank holding the current mortgage on the home will need to give their stamp of approval on the sale of the home before it can be legally sold. Often times this can take weeks and even months longer than a traditional home sale.
Competition: a home offered below market value is going to bring more competition, and will even bring competition from home investors with large sums of readily available cash. Be ready to stay optimistic and patient.
Purchasing a foreclosed property is a great way to find a home you want at a price you can more easily afford in a market where home prices are increasing. There are some things to consider before diving in to shopping for these types of properties. With the right mindset and an experienced local real estate agent at your side, it can be a very worthwhile endeavor.
For help buying a home in Central Indiana please contact us any time. We would love to help you find a home you love in today’s sellers’ market.
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