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How is buying a foreclosed home different than buying a regular home?

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My husband and I found an amazing deal on a foreclosed home. We are seriously thinking about trying to buy it, but aren't sure if there are any downsides to buying a foreclosure.  Can you tell me how buying a foreclosed home differs from buying a regular home? Are there any potential pitfalls that we need to be aware of?
asked Feb 3, 2016 in Real Estate by Jules89
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As you have already discovered, one of the main benefits of buying foreclosed homes is that you can often get them at a great price. Banks are usually willing to sell these homes at a discount, simply for the fact that the longer they hold onto them, the more money they have to pay in taxes and maintenance.

 

Unfortunately, there are also several downsides to purchasing foreclosed homes. As long as you know what you are getting into, however, they can still be a great deal. Here are some of the things that you have to consider when buying one of these homes:

 

1. Foreclosures often require repairs

 

Most homeowners who wind up in foreclosure don't have the money necessary to properly maintain their homes. As a result, these homes are often in bad shape by the time the bank takes possession of them. [1] Additionally, once a home is vacant, it may be vandalized or otherwise abused, resulting in damage to the property. Even if the home has not been vandalized or mistreated, it still may require significant repairs after sitting vacant for a long time. When homes aren't used, they can develop problems with mold, rot, pests, and water damage. All of these issues can make it difficult to get a loan for the home and can cost a lot of money to repair.

 

2. Many foreclosed properties have liens attached to them

 

If you purchase a home that has liens against the title, you may need to pay off these old debts yourself before you can take ownership of the home. [2] Because of that, it is absolutely essential that you do your research before buying a home so that you know what you are getting yourself into. Ideally, the property you purchase will have a clear title.

 

3. Buying a home at auction requires a large amount of cash

 

Many foreclosures are sold at auction. While this can be a great way to get a discount on a home, it also requires a significant amount of cash. In most cases, if you buy a property at auction you will be expected to pay the full amount of your bid in cash on the day of the sale. You also may not be able to inspect the property before you buy it. That means that you could wind up with a big mess on your hands after you have already paid for the home.

 

4. You may have to evict the current owners or tenants

If the previous owners are still living in the home, you may have to hire someone to evict them, or deal with the situation yourself. Forcing a family out of their home can be emotionally challenging. The eviction process itself can also be costly.

 

Despite all of these downsides, foreclosures can still be a good investment. You just need to make sure that you go into it with your eyes open, knowing what to expect. As long as you budget plenty of money for repairs and do your research before buying a property, it can be a great way to get a home at an affordable price.

 

This video does a great job of outlining the pros and cons of buying a foreclosure:

 

 

References:

 

1. http://www.homefinder.com/research/how-to-buy-a-foreclosure-34id
2. http://www.trulia.com/guide/home_buying/find_a_house/why_you_should_or_shouldnt_buy_a_foreclosure/

answered Feb 3, 2016 by blueskies (57,070 points)

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