Pros and Cons of Buying a Foreclosed Home

From Beth on February 24th, 2009 in General

If you’re in the market to buy a home you have more options today than you would have had a year ago. Your only obstacle might be financing. Banks have tightened their lending standards and loans aren’t easy to come by, especially if you don’t have pristine credit and a hefty 20% down payment. Of course, if you fit within the lending guidelines of an FHA you only need 3.5% down and your credit doesn’t have to be in the 800’s.

The opportunities that you have today are buying while the housing market is bottoming out and the choices you have in how you buy: foreclosures, pre-foreclosures, short sales, REO’s (bank owned), fisbo’s (for sale by owner), and the good old fashioned way (remember the traditional way where you dealt with the owner and realtors?)

Of the various ways in which you can buy a home this article focuses on foreclosures and the pros and cons of this type of investment.

Buying foreclosures can be a great way to get into a home at a fraction of the cost, but it can also be a money pit if you don’t know what you’re doing. Foreclosures are often sold for 20% to 50% below their true market values. If you’re the handy type, buying fixer-uppers can be even more lucrative and a significant profit can be made upon reselling after the proper repairs and renovations to the property have been completed.

You’ll need to do your homework and, if possible, seek advice from others who have already (successfully) gone through the process themselves. Obtain a list of homes that are set to be auctioned. If you find a home you like then drive by the home for a visual inspection and check out the neighborhood. Look at listings that have recently sold in that area and compare them with your prospective home to get an idea of what you should bid. Once you set a maximum bid amount don’t get emotional and overbid – stick to your price – remember, you’ve done your research and you know what the house is worth.

The Selling Points

• Possible big savings – 20% to 50%.
• No long drawn out negotiations.
• Lower closing costs.
• Better financing terms.
• Quicker move-in – most foreclosures are vacant which means you can move in right after buying the home.
• Bigger profits – buying at a discount means more profit for you when reselling. It also allows you to build equity faster.
• Rental income – foreclosures can be a great investment for renting.

Reasons to Be Wary

• Liens – usually, upon purchasing a foreclosed property, all former liens are wiped clean by the bank. However, if there are liens on the house it might slow up the paperwork.
• Property condition – there are many homes on the foreclosure block that are in great condition just as there are many homes that are run down and in need of major repairs. The prior owners were facing financial difficulty so chances are they weren’t able to maintain the home properly. Some prior homeowners, angry that they’re losing their home, vandalize the house by taking the kitchen cabinets, dishwasher, light fixtures, and other assets that would normally stay in the home.
  
• Evicting former owners – in some cases the former owner refuses to leave. If this happens it will be your responsibility to evict them.
• Sold as-is – foreclosure home buying requires more caution and more research; they’re sold as-is with no guarantees.

Place Your Bid on these Auction Homes

Real Estate Disposition Corporation
J. P. King
United Country Auction Services
Williams & Willaims
Bid4Assets

More on related topic:
http://homebuying.about.com/od/4closureshortsales/qt/?once=true&