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You may be ready to try anything to get into a home in this tough market. Read on to learn what to consider when buying a foreclosed home.
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There’s one word that represents a major blow to your life and your credit if you’re a homeowner: foreclosure. If your home has gone into foreclosure, it means you’re very behind on your mortgage payments (delinquent by at least 120 days) and the lender is taking the house back from you to sell it, often at auction. It happens because your mortgage loan is secured by the home, which acts as collateral.
But what if you’re an aspiring home buyer and you have the opportunity to buy a foreclosed home? Let’s take a look at a few reasons why you might want to — and a few reasons why you might not.
Perks of buying a foreclosed home
I probably don’t have to tell you (again) that the last few years haven’t been the best time to be a home buyer. Home prices skyrocketed in 2020 and 2021, and the median price of an American home sold went from $322,600 in Q2 2020 to $467,700 in Q4 2022, as noted by the Federal Reserve Bank of St. Louis. With gains like that, you’re probably looking for ways to spend less on a home, and buying a foreclosure could offer you that opportunity.
You’ll have the chance to save money on a home if you can buy it at auction (note that you may have to make a cash offer) or even after it hasn’t sold at auction, when ownership reverts to the lender. It’s a safe bet that the home will be priced to move by that stage, as the lender will be truly motivated to get the foreclosed home off its books. It will also pay your real estate agent’s commission and could make further concessions to get the home sold. A lower price and the potential for more seller concessions than you’d otherwise get in this seller’s market sounds pretty great, right? Unfortunately, foreclosed homes come with some downsides, too.
Drawbacks of buying a foreclosed home
There are a few reasons to think twice about foreclosures. When you buy one, you’re getting it as-is, which means everything potentially dodgy about it (such as tax liens) comes to you. You might also not be able to have it inspected beforehand, and a home inspection is something you don’t ever want to skip in the course of buying a home.
Speaking of home inspections, the condition of the home could be a little rough — or worse. The former owners perhaps let routine maintenance and repairs fall to the wayside along with skipping mortgage payments, which is certainly understandable if they were experiencing a financial hardship. But less pleasantly, they (or others) may also have vandalized or looted the home, and if it’s stood empty for a long time, it could be infested with insects or rodents. Human squatters could even be living in it.
A home that is empty and unloved can deteriorate quickly. Ultimately, the money you save on the home purchase itself could end up going to repairs and making the house livable again. So a foreclosed home may not be the wonderful bargain you’re hoping for.
Proceed with caution
Your home-buying situation is personal, and buying a foreclosure could work out just fine for you. It might not be the best idea for your first-ever home purchase, though, given all the intricacies of auctions and dealing with a mortgage lender as seller, not to mention the potential pitfalls of the home itself. If you decide to look into foreclosed properties, hire a real estate agent with experience in the foreclosure market to help you, and go into the process with eyes wide open.
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