If you are in the market to purchase a home, it may be a good idea to check out foreclosures as well. While a foreclosure usually offers price advantage, these may not be the right choice for every prospective home buyer. Hence, it is important to weigh the pros and cons before you take the decision.
image by taberandrew
Before you start pondering about purchasing a foreclosure, it is important you understand there are different types of foreclosures. The kind of foreclosure you choose should be based on this knowledge, as it could affect your bargaining power.
This foreclosure, also known as short sale, comes into effect when the homeowner defaults on the mortgage. So, even though the property is owned by the homeowner, the legal action by the lender is still pending. It will go into foreclosure anywhere from 90 days to 12 months. Hence, the homeowner will want to sell it quickly to prevent this from happening. If you want to buy it, your application will be first reviewed by the lender and only if it is satisfactory will the lender accept your offer. It can be a long and tedious process to get approved.
Auctions for foreclosed homes can take place at the county courthouse and online. The opening bid amount is always fixed and is dependent on the total amount of loan that the homeowner still owes the lender.
When the auction does not reap results, the attorney of the bank purchases the property and it converts to real estate owned (REO) property that the lender owns. This is the most common type of foreclosure in the real estate market. When a lender owns the property, he will try to dispose it as quickly as possible. So, he will perform minor repairs, general maintenance and even clean it up to make the property more attractive to prospective buyers.
Buying a foreclosure can be tempting. However, can you afford the property without feeling the financial pinch? The cost of the mortgage, insurance and property taxes should never exceed 36 percent of your total income.
Make it a point to get prequalified for the mortgage. It benefits you in two ways. One, you know what your budget is and look for a foreclosure within that amount. Second, you turn into an attractive buyer for the seller, as the prequalification shows you are serious about buying and not there to waste time.
There are many benefits to buying a foreclosure. These include:
While a foreclosure can be an attractive investment, remember it also comes with a few disadvantages, like buying the property in as-is condition, competing with many prospective buyers, dealing with additional paperwork, lack of maintenance and cleanliness and vandalism. If you don’t mind these problems which at times can be overwhelming, you may enjoy investing in a foreclosure.
Feel free to Subscribe to our PropertyCluster Blog to stay up to date with our latest posts and information on Real Estate Industry or you can Follow Us on Facebook, Twitter, Pinterest and Google Plus for regular updates.