5 Benefits of Purchasing a Foreclosed Home

Looking to buy a home that is affordable, has quality, but probably isn’t going to be your forever home? A foreclosed home may be a worthwhile option. The home buying process is often expensive and can be quite tedious.

It’s important to look at homes that are in your price range and that you know you can afford given all your other expenses. When shopping around to see what’s on the market in your area, don’t avoid looking into any foreclosures.

A foreclosure occurs when a homeowner can no longer afford to pay their mortgage and interest on their home. At this time, the lender can choose to revise the payment term/amount to make the mortgage more affordable for the owner, or they can put the house up for auction or choose to sell the home themselves.

A foreclosed sounds like a nightmare for the previous owner, but if you can’t afford to pay for your rent or mortgage, it’s likely that you’ll be asked to leave and seek out more affordable housing. Sometimes life events or unexpected changes prompt homeowners to no longer be able to afford their homes anymore. It’s not a situation I’d wish on anyone, but on the flip side, as a potential homeowner, you can benefit from buying a foreclosed home depending on your needs and situation.

Here are 5 benefits of purchasing a foreclosed home along with a few disadvantages.

1. More Room for Negotiation

If you’re not a fan of bargaining and negotiating lower prices, it’s still worth a try when considering a foreclosed home because the process should be much simpler and more likely to merit positive results. The lender who is selling the home may be anxious for a buyer especially if the home has been on the market for some time.

Therefore, they may be willing to lower the price of the home if you request it.

While financial institutions aren’t normally very lenient in terms of negotiation, they also want to get foreclosed homes off their hands as soon as possible so a new loan can be secured. It may take some time to hear back after you put an offer in, but don’t always assume the worst early on.

2. A More Affordable Home

Whether you are able to negotiate a lower price or not, foreclosed homes will always be marked down significantly when compared to other homes in the neighborhood. If you are interested in continuing to live below your means, pay off your home early, or just keep your living expenses low so you can do other things with your money, it’s likely that you will find several foreclosed homes listed at very competitive prices.

Purchasing a home at a lower price can allow you to gain equity in your home quicker plus, it can be a potential investment property in the future.

3. Simpler Sales and Closing Process

Since lenders are trying to sell the home quickly, you most likely won’t have to deal with the continuous back and forth that takes place during a normal home buying situation. You will still need to do inspections and follow normal protocol. However, the sales process should be simplified and when it comes to closing, most banks will help cover your closing costs as a positive gesture.

4. Ability to Do More Home Projects

A lot of foreclosed homes are sold as is, but if the home is still in good condition, this shouldn’t make a huge difference to you. However, if you like DIY projects and the idea of customizing your home, the lower sale price of the home may free up more room in your budget to complete special home projects to enhance your home.

Fixing up your home is rewarding because it allows you to feel more comfortable in your space but it’s also good for your finances long-term too. If you build up more value in your home, the higher your profit will be should you ever decide to sell the house in the future.

5. Potentially Better Neighborhood

While not all foreclosed homes are in a great neighborhood, you may come across one that is in a prime location or in a desirable neighborhood that you wouldn’t mind moving to. If most homes are sold on certain blocks in particular areas where buyers are locked in with 30-year mortgages, your only hope may be a foreclosed home.

When considering a home in general though, it’s important to learn about the school district if you have kids or plan on having kids, ask realtors and local law enforcement about the neighborhood, and do your own research as well.

Some Disadvantages of Buying a Foreclosed Home

Of course we can’t praise foreclosed homes without acknowledging some of the disadvantages of choosing this option.

Unexpected costs and damages – Some foreclosed homes are not in good condition. The people who previously lived in the home could have made some damages that you would have to consider repairing if you purchased a foreclosed home. Since the lender sells the home as is, you need to make sure it’s inspected carefully and you have a good idea of what all your repair costs could be upfront.

More Competition – The one thing that could slow the purchasing process down would be offers and requests from other potential buyers. Since foreclosed homes are priced so low, this will naturally attract other people who are looking for a home as well which could result in more options for the lender to pick and choose.

No Contingent Properties
If you are looking at a foreclosed home and you currently own a home, lenders see this as too risky and you will need to sell it before the bank accepts an offer on the other property.

Summary

Purchasing a foreclosed home can have some great financial benefits and most of them lie in the fact that the purchase price is significantly lower when compared to other homes on the market. While you’ll need to carefully consider the condition and location of the home, if the time is right and property suits your wants and needs, foreclosed homes in your area are certainly worth looking into.

Do you have any experience with purchasing or inquiring about a foreclosed home on the market? Would you ever consider it?