Your days of hard work have paid off and you have managed to find your ‘dream home,’ which happens to be a foreclosure. You may be wondering if it’s safe to buy a foreclosed home.
Well, there is no simple one-word answer to this question—as with most major decisions. It all depends on your unique set of circumstances and the amount of risk you’re willing to accept. In this article, we will explore some of the basics of foreclosures and look at the pros and cons of buying them.
When homeowners fail to pay the mortgage, they are forced to forfeit ownership of their house. As a result, the lender buys back the property. That process of transferring ownership back to a lender is called foreclosure.
The foreclosure process varies by state, but it generally begins when the bank notifies the County Recorder’s Office that the borrower has defaulted on their mortgage. Borrowers usually get a three to the six-month grace period to either enter into a short sale agreement or settle the outstanding payments in order to remain in the home.
If the borrower is unable to complete either within the given grace period. The bank sets a date to sell the home in a foreclosure auction. At this stage, the homeowner may exercise a right of redemption, meaning he can stop the foreclosure auction by paying his outstanding mortgage payments.
At the auction, the house is sold to the highest bidder. If it remains unsold, the lender takes over possession of the house. The property is then deemed “real estate owned” and the bank lists the property for sale through a real estate agent.
Don’t get carried away by falling for the lowest-priced homes in the auction. The auction process is risky because you’re buying a home you don’t get to inspect beforehand. With that in mind, you are likely to purchase a home at an auction that requires extensive repair. Which could cost you thousands of dollars.
Another danger is that the property could have a lien or outstanding debts against it which the borrower never settled. In this case, the safest choice is to buy a home that the bank owns since these houses have already gone through the auction process.
The bank will most likely sell these homes at prices below market value because they want to get rid of them. An added benefit is that banks are supposed to pay any liens that exist against the foreclosed property. Buyers can inspect the property personally or through professional inspectors.
This would give the buyer a chance to see how much repair the house needs. And include this amount in the total cost of buying the home to see if the deal is worth doing. Besides, a buyer can use the findings of the inspector to re-negotiate the price.
Each foreclosed home has a unique history and set of facts, so it depends. Additionally, every borrower has different personal reasons for wanting to buy a foreclosed home.
It is safe to say, however, that any foreclosed home will require some maintenance. It’s a good idea to set aside at least 5% of what you plan on paying for the house to cover potential maintenance expenses. Similarly, make sure you have the time necessary to make the home livable. If you don’t have the money or time it may not be in your best interest to buy a foreclosure home.
To buy a foreclosed home, you can start by finding properties in your area that are being sold at auction or through a real estate agent specializing in foreclosures. Be prepared to do your research, have financing in place, and understand the risks involved with buying a foreclosed property.
Yes! Buying a foreclosed home can be very beneficial in many ways.
In New York, you can purchase a dispossessed home through a public closeout or a bank-claimed deal. You must register with the auctioneer and bring a deposit to a public auction in order to participate.
In New York, foreclosure is the legal process by which a lender takes possession of a property from a borrower who hasn’t paid their mortgage. The procedure requires a court hearing, and the property may be sold at a bank-owned sale or a public auction to cover the lender’s losses. The returns from the deal are utilized to take care of the excess home loan balance.
Buying a house is a huge deal—it’s not something we do every second day. Therefore, don’t get carried away and jump at a foreclosure just because it looks like a good deal. Talk things over with your agent and figure out what works better for you.