Sunday, July 14, 2013

Is a foreclosure worth it? Issues and upfront costs...

Despite all these potential problems and upfront expenses, foreclosures can still be a good deal. 

If you are willing to fix problems that most people do not want to deal with, you can buy a home at a significant discount. However, you may encounter additional issues when it comes to actually purchasing the property and getting it into move-in condition.

"Buyer Beware" is a good rule of thumb when considering buying a foreclosure (bank-owned or REO house).  Here are just SOME of the reasons why...

•Issues With Lenders
Buying a home from a lender has its issues as a result of the increased level of bureaucracy and the limited transparency afforded to those who buy foreclosures.

•Financing a Foreclosure
Lenders will not loan you money for a home they consider uninhabitable or that appraises below the purchase price. Appraisals for government insured loans are more strict about the condition standards than conventional but of course if you are an investor paying cash this will not be a problem. Also, beware of the hidden costs that can be lurking around a foreclosed property.

•Time Delays With the Owner Bank
Common sense says that banks should want to unload REOs as quickly as possible, but in reality banks sometimes drag their heels in considering offers and throughout the escrow process.

•No Seller Disclosures
Since no one from the bank has ever lived in the house, they are unlikely to have any knowledge of existing problems with the property. You will have to uncover everything yourself, either during the home inspection, by asking neighbors or through experience after you become the homeowner.

•Competition When Making an Offer on a Foreclosed Home
Because foreclosures can be great deals, they are attractive to investors looking to flip properties or use them as rentals. Since investors can make all-cash offers with fewer or no contingencies and fast closings, their offers may be more attractive to the bank than those from would-be owner-occupants who desire inspections, financing or other contingencies.

To help more owner occupants take advantage of these "deals" some bank-owned properties have a set timeframe when the home is first put on the market where only owner-occupant offers are considered.
Search for Foreclosed Homes

OK - so there is A LOT more to consider but I want to keep these posts short.  Please search this blog for posts tagged "Foreclosure Headaches" for more considerations.

All this have you thinking about purchasing short sales?  That is another conversation. 
Call me to further discuss your property purchase plans!