Foreclosures tend to catch your eye because they’re discounted, but the break in price does come with substantial risk. Add up the fees for inspections, the cost of repairs and renovations, and what seems like a steal can turn into a poor investment.
Before jumping on a foreclosure, follow these tips:
1. Work With an Expert
Buying a foreclosure owned by the bank is much different than a typical sale. The transaction is between you and a bank rather than a homeowner. And since banks are more concerned with their bottom line, there’s less room to negotiate on price.
Buying a foreclosure also involves more paperwork and the process can be arduous. So choose an agent or broker that has experience navigating the ups and downs of buying one. They’re in a better position to communicate with banks on your behalf. Most importantly, they can advise you on which foreclosures are good investments and which ones you should pass up on.
You should also find a lender that has a history providing mortgages for foreclosures and prequalify before putting in an offer. We can help you there.
Before closing the deal on a foreclosure, you need do a title search to see if there are any unresolved liens against the property. Once the home is yours, you may become responsible for money owed as well. That’s not something you want to learn after committing.
Inspections are key. A foreclosure occurs when a homeowner defaults on payments. If they couldn’t pay the mortgage, there’s a good chance they’ve been lax in other areas like routine maintenance.
Bring in inspectors to make sure the cost of the home and repairs won’t exceed its value. Your real estate agent or broker can provide you with recommendations on appraisers and inspectors who have worked with foreclosures.
Sometimes you’re not able to go inside of a foreclosure before purchasing it. Your agent may be able to get their hands on the most recent inspection, but understand that buying a foreclosure site unseen is a monumental risk.
Outside of structural damage, factor in cosmetic fixes. It’s common for disgruntled homeowners to remove items of value like appliances when their home goes into foreclosure. Plus when a home sits vacant for a long time it’s a target for theft and vandalism.
In a typical home sale, you could ask the seller to cover some of these costs. A bank is less likely to pay for these damages. In fact, in most cases, you’ll sign an ironclad agreement that states you’re buying the property “as is”.
Be sure to calculate what it’ll cost to renovate the home beforehand, otherwise, you may find yourself stuck with a money pit.
Do your research. The neighborhood you choose is important for resale value. Many foreclosures in one area is bad news. Although you’re hunting for the best deal now, think long-term and whether you’ll be able to get a return on your investment when it’s time to resell.
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