Many people are nervous about buying a foreclosed home and that is understandable. There are a lot of horror stories out there about people who regret buying a foreclosure, but it’s not always the nightmare that you might think it is. If you know what to expect and you prepare yourself properly, you can save yourself some money in the long term.
What Is A Foreclosure?
In pre-foreclosure, the homeowner is in default on the loan, but the lender has not yet foreclosed on the home. A foreclosure is a home that has been repossessed by the lender and is going to be sold at an auction. These auctions are a great way for investors to buy and hold new properties or to fix and flip, but might not necessarily be the best option for the average buyer. Still, it’s worth looking into.
Tips For Buying A Foreclosure
Cash Is King
Most investors buy properties with cash, which is tough to compete with as a buyer who will need mortgage financing. You can get a mortgage loan to buy a foreclosure but you’ll still need plenty of cash on hand. This is to cover normal costs associated with buying a home, but also any necessary repairs as you might not be able to get those financed. If the house isn’t move-in ready, keep in mind that you’ll be paying for two residences until it is.
Before you make an offer, investigate as much as you can about the property. If it’s an REO home, find out how long it’s been unoccupied — homes left vacant typically require more repair work than homes that have been consistently occupied. Hire an inspector and ask for a repair estimate in the inspection. If at all possible, visit the property and at least walk around the exterior. Get a sense of what it will look like when it’s all done up and just how bad any damage is.
Closing, Repairs, and Moving In
Very few foreclosures are going to be move-in ready. Depending on the work that needs to be done, buyers may choose to have the work done before they move in, or they might have the work done while living in the newly acquired home. That will be up to you, your lifestyle, and the necessary repairs. If you do as much work as possible on the front end, you’ll find that buying a foreclosure isn’t just for investors. Learn as much as you can about your potential property and you’ll avoid any unexpected headaches in the future.
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