Pros and Cons of Buying a Foreclosure
Many homes and homeowners have been foreclosed on in recent years, offering those looking to buy the opportunity to buy home at below market values. Is that cheaper price a better value though? Is it a good deal? There are pros and cons to buying a foreclosed property, and you’ll want to make sure you’ve properly evaluated the advantages and disadvantages before you look into buying a foreclosed on home.
Pros of buying a foreclosure
- You’re likely to get a very lucrative sale price. Lenders don’t want to hold onto empty homes and so lenders may be willing to offer to sell foreclosed on homes at prices lower than the local average for a home of similar size and location. Many lenders will offer prospective buyers steep discounts in order to clear empty homes off their books.
- You can build instant equity. If you buy a home for much lower than it’s worth, you can instantly and quickly build substantial equity in the home, making it easier to sell later on and to leverage your financial landscape – which may be especially important if you intend to buy more property in the future, or leverage your home to buy off other debts through a HELOC or other home loan offering.
- You might be able to buy a larger home than you thought possible. Because of the great deal many foreclosures offer, prospective buyers often find that they can buy a larger home than they thought they would be able to afford. Foreclosures happen in every neighborhood and to every size home.
Cons of buying a foreclosure
- Untended or destroyed property. Some homeowners, knowing they will be or have been foreclosed on, will stop caring for their property in a normal manner. Home repairs can spiral, meaning you may purchase a home that needs substantial and expensive repairs.
- You may not have an opportunity to tour or inspect a property before you buy it. While some foreclosures can be toured like any other property, some homes sold at the steepest discounts are sold “as-is” meaning you assume all risks and the condition of the home. These sales often do not allow prospective buyers the opportunity to tour the property before it’s sold, making your purchase quite a gamble.
- The process can be slow and full of red-tape. Even though many lenders want to unload foreclosed properties on their books, the foreclosure process can be a slow one. In some cases it can takes weeks to hear back on an offer you’ve made to a lender on a home they have for sale. If you are looking to buy a short sale home, the current home owners, the primary lender and any other lien holders on the home (such as second mortgages, tax assessors and others) must approve of your bid on the property, a process which can take months.