Homeownership is so many people’s dream. Essentially, everyone desires their own personal space. This is why some people are buying foreclosed homes. The option of foreclosure is appealing because the price is usually lower, but are there any disadvantages? Are foreclosures hard to find? Let’s discuss foreclosed homes and if they really are a great opportunity.
Have you heard the term “foreclosure” before? Properties that are in foreclosure are usually offered at a reduced price or at auction by the bank. So what is the history of a foreclosed property before it became one? The quick answer is that sometimes homeowners are unable to make their mortgage payments, therefore their lender wishes to limit damages. In cases where foreclosures are sold, it means that borrowers were unable to pay back their loans. Once this happens most if not all, lenders have no choice but to sell the property at a discount.
Foreclosure Listings to Keep in Mind
Not all foreclosed homes are the same. Depending on the lender and the type of property, the terms and conditions of a property may change. Also, we all have different interests when looking for a home. In order to provide everyone with a better understanding, we will go over four types of foreclosures:
- Auction Homes
- Pre-Foreclosure Homes
- Short Sales
- Purchased Directly through the Bank
Since the borrower didn’t pay their mortgage payments, the goal now is to ensure the lender gets their money as quickly as possible. For this reason, auctions are arranged for these properties in the hopes that a sale will result in money being paid to the lender. So where can these auctions be found? People should look out for auction advertisements because they can be found in a variety of locations. However, we have to stress the fact that, before an auction takes place, the borrower is given a grace period in which their mortgage must be repaid. Once the borrower’s window of time to settle the mortgage has passed, a sheriff’s sale auction will take place. It’s only once the loan is in default that an auction will take place.
We talked earlier about how new buyers profit from the previous owner’s desire to quickly pay back their loan via the sale of the house. That’s actually why it’s common for homeowners to list their home as a pre-foreclosure in the hopes of selling it quickly. That said, a home has to go through the pre-foreclosure phase prior to being put up for auction. At this point in the process, the present borrowers are issued a notice of default on the property by the lender. Pre-foreclosure properties usually make their way onto the lists that are displayed in courthouse buildings situated in the county and city areas. To add to that, there are ways to review these properties digitally that provide available pre-foreclosure properties.
People searching for homes that are in foreclosure will probably find short-sale homes offered as “pending bank approval.” A short sale occurs when the lender accepts a price for the house that is lower than the amount still outstanding on the loan. This can be beneficial to borrowers who are facing financial hardships and need to get out of their current situation. However, it is important to note that if a lender agrees to a short sale, then the current owner will need to provide documents that prove they are financially struggling and unable to pay off the mortgage in full. Additionally, lenders may require additional documentation, such as proof of income or copies of bank statements. Having said that, even when borrowers are not in default, lenders will occasionally allow a short sale.
Purchased Directly through the Bank
Attending an auction might be stressful for some people. That’s why some prefer to buy a home straight from the bank. This brings us to how the bank acquired these properties to begin with. Basically, sometimes an auction fails to generate a sale for a property. In this case, the home is returned to the bank. When this occurs, the home is an REO (real estate owned) property.
The Drawbacks of Buying a Foreclosed Home
Before buying a foreclosed property, people should do their research and weigh up their options. Additionally, it’s wise that homebuyers brace themselves for the negative aspects of foreclosures, some of which include:
- Market competition
- Unexpected fees
- Delay in the process
One thing about foreclosures is that they’re usually sold at a lower price. However, that very low price could be the same reason that the property price rises, potentially making it overvalued. Let’s say a home is listed for an affordable price. Naturally, many people would want it, which could result in competitive bidding. If the bidding lasts, the property will go to the bidder who offers the highest price, which defeats the point of foreclosures being affordable. Thus, if someone had a budget in mind for the property they wanted to purchase, they could be let down if they couldn’t afford to engage in the market competition.
When we talk about a foreclosed home, we are most likely referring to a property that is in bad condition. Therefore, new homeowners should be prepared for all the costs that come with repairs and renovations to the property. Additionally, there could be unexpected fees that homeowners are required to cover in full before the sale is completed. Unexpected fees can include things like liens or back taxes.
Delay In The Process
Certain things can make the process of purchasing a foreclosed house difficult. For instance, the property buyer may find it challenging to secure financing. One factor that can make it challenging for the homebuyer to get financing is if the home’s appraisal value is low. Basically, a low home appraisal value indicates that the property’s condition is bad. There isn’t much that people can do to speed up the foreclosure process, however, they can try to be prepared from the beginning by having the necessary paperwork.
If a home is seized by a lender due to the borrower’s inability to repay what they owe, this is known as a foreclosure. In most cases, properties that are about to go into foreclosure are offered at a reduced price or at auction by the bank. Usually, families that are unable to pay back their mortgage debts lack the resources to maintain their homes. For this reason, when someone purchases a property that is in foreclosure, they should prepare for significant house renovations. Having said that, the good thing about a foreclosed home is that it is more affordable and comes with lower expenses.
Where can people locate foreclosures? Real estate brokers may assist their clients in locating a foreclosed property. Furthermore, there are numerous websites on the internet that may have foreclosure property listings. Foreclosures are not impossible to find, but they do require a little searching. The good news is that people with their hearts set on home ownership have a chance of making their dreams come true through foreclosures.