Should You Buy A Foreclosed Home?
A foreclosed home is one in which the owners of the home did not meet the obligations under their mortgage loan, commonly. According to Investopedia, this leads to the seizure of the home to allow the lender to sell the property.
The lender may do this because of missed payments causing the homeowner to default on the loan, for example. To recoup their investment in the home, the lender aims to either take possession or force the sale of the home, depending on the situation. It is then possible for a buyer to purchase the home, sometimes at a lower price.
Before you decide if buying a foreclosed home is the right decision for your situation, it's wise to learn as much as you can about the property and the process. It's also a good idea to examine your budget to ensure you are ready for anything that happens once you buy it.
Are there benefits to foreclosure?
The biggest advantage of buying a foreclosed home is typically the lower price when compared to properties like it. In some cases, Experian notes, foreclosed homes sell for significantly less than what you may pay for a home sold traditionally.
It's also important to know what you're buying. Is it really a home that fulfills your needs in the right community? Don't buy it just because it's a deal but because it fits your family's needs and goals. It's also essential to know as much as you can about this property, including its features and specs, current condition, and any foundation concerns.
It's only a good price when you can buy it at an affordable rate without having to worry too much about the repairs or a hidden problem. You'll also need to be sure that your lender will finance it. For some FHA loans, for example, you may need to make significant repairs. Not all government-backed loans allow that, says Bankrate.
Watch out for these pitfalls
On the other hand, there are some pretty big risks that come from buying a home in foreclosure. As Zillow points out, you could be required to buy "as is," which could mean significant repairs are needed. There are some instances in which no inspection occurs, which could mean you really have no idea what you're buying.
Sometimes the previous owner is still present, or squatters moved in. That means you may need to evict them from the home. This and other factors could mean it takes much longer for you to buy the home. A foreclosure may not be a good option if you need to move quickly.
Ultimately, only you can determine if buying a home in foreclosure is the best decision for your specific needs. In many situations, these homes could be a bargain if you know what you are buying and can get an inspection. Other times, this could be a financial risk that you are taking on.