If you’re in the market for a house, you may have considered purchasing a foreclosed home.
This option exploded in popularity following the Great Recession, when foreclosed homes flooded the market. Many buyers who had never even considered purchasing a foreclosed house found themselves actively pursuing the opportunity.
While there are still plenty of foreclosed homes for sale out there, it’s important that you don’t rush into purchasing one before thinking through this decision. Specifically, you should consider each of the pros and cons of buying a foreclosed home.
Where Can I Find Foreclosed Homes?
Buying a foreclosed home has never been easier.
There are countless websites online that list foreclosed homes for sale. Many banks have foreclosure listings right on their sites. For example:
Otherwise, you can find foreclosed homes on these websites:
· The MLS
Again, before you go perusing all the listings on those sites, let’s review the pros and cons of buying a foreclosed home.
2 Reasons to Buy a Foreclosed Home
Though it means limiting their pool of options, some people only consider foreclosed homes. There are two main reasons:
1. The Savings
Without a doubt, the main attraction of buying a foreclosed home is that it’s probably going to cost a lot less than a comparable property that isn’t in foreclosure.
After all, lenders just want to cover their losses. Their main goal is to get foreclosed houses off their books and try to make as much back as they can.
So, if your budget isn’t giving you a lot of options, you may consider looking at foreclosed homes.
2. The Timeframe
Another ideal aspect of buying a foreclosed home is that the timeframe it takes to close could be a lot shorter.
If a bank finds out you’re applying for financing to purchase one of their foreclosed homes, they have quite the incentive to move your application to the front of the line.
Instead of waiting 45-60 days to get approved for a mortgage, you might hear back in a week or two.
4 Reasons Not to Buy a Foreclosed Home
What’s not to love about buying a foreclosed home?
It means you pay less and move in sooner.
While that’s often true, there are four good reasons most house hunters stick to more traditional options.
1. The Timeframe (Again)
That shortened timeframe can work against you, too.
Banks aren’t waiting around for the best possible offer. They’re going to sell to whoever gets closest to the total mortgage amount.
That means you have to move fast if you want to buy a foreclosed home and you may not have time to consider all of your other options. You might buy an amazing home only to later realize that, if you had just slowed down and explored the local market, you could have had the house of your dreams.
Likewise, just because a bank is motivated to provide you with financing doesn’t mean they’re going to give you the best possible option. They don’t want to be in the exact same situation with this house a year down the line, so the mortgage they offer may not be as generous as what you’d otherwise qualify for.
2. You May Need to Wait for the Previous Owners to Move Out
Imagine you’ve bought an incredible home, one you’d otherwise never be able to afford if not for the fact that it was recently foreclosed on.
You cannot wait to move in.
Unfortunately, the original owners are in no rush to move out.
Just because you’ve purchased the home doesn’t mean they can’t keep living there.
In fact, in some states, foreclosure laws include a redemption period for the original owners. Once their home is sold, they could have months to essentially buy it back uncontested. Those are months you simply have to wait around to hear whether or not you need to keep looking for a new home.
3. Real-Estate Investors Love Foreclosed Homes
According to The Wall Street Journal, even as home prices are steadily increasing, “the share of investor purchases of U.S. homes have climbed to an all-time high.”
Many house hunters learn this the hard way.
They look into foreclosed homes because they’ve heard all about how much cheaper they are. Unfortunately, what they often find is that there are plenty of real-estate investors who will bid aggressively in order to purchase a house they can flip for a profit or turn into a rental property.
The latter type of investor is especially difficult to beat in a bidding war because they have such a long-term outlook. It will easily take 5 – 10 years before they profit from a rental. If paying more for a house they really want means waiting an extra year or two for those profits, it’s worth it.
4. Most Foreclosed Homes Are Sold "As Is"
The vast majority of foreclosed homes are put on the market “as is.” The banks are already operating at a loss, so they’re usually not going to invest even more money into a foreclosed house, even if repairs are desperately needed.
As we just covered, there’s almost always an investor willing to buy a foreclosed property, even if it needs a lot of work before it will attract any interest. To an experienced real-estate investor, it’s worth the investment because of the rock-bottom price.
This is why you also can’t expect a lot of wiggle room where the terms are concerned. Investors who thrive on buying foreclosed homes won’t care about terms if it means they can purchase a cheap home to flip.
You Don’t Need a Foreclosed Home to Save Money
The promise of saving a lot of money by buying a foreclosed home will always be compelling.
And, to be fair, some people are still able to find a diamond-in-the-rough at a foreclosure sale.
However, this has absolutely become the exception and not the rule. There are just too many real-estate investors out there who are willing to pay for foreclosed homes they can rehab and profit from.
Don’t worry, though.
At SimpleShowing, we’re pioneering a new way to help buyers save money when they’re looking for the home of their dreams. With our Buyer Refund Program, homebuyers are earning an average of $5,000 just for using our simple platform to find the perfect house.