Let me start by saying that considering any money saving options when purchasing a home is smart. I would always advise that first time buyers do plenty of research before settling on buying a foreclosure. Buying a foreclosed home may seem like a great deal at first glance. After all, how could an incredibly low sale price not be a great thing, right? But, there’s more to foreclosed properties than meets the eye. They’re an entirely different breed than a traditional sale and they require a deft hand in order to be handled successfully.
If you’re considering buying one of these properties, there are some essential factors to consider before getting involved. Should you decide moving forward with this process, there are four main things that every buyer should know.
1. You’re dealing with a bank, not a seller
The first thing to know aboutis it’s very different than a traditional sale. Normally, you’d be negotiating with the current owner of the home. However, foreclosures only happen once the former owner has stopped paying his or her mortgage and the bank has taken over the property. By the time a home goes to foreclosure, the seller is out of the picture.
Obviously, dealing with a bank will be a much more formal process than dealing with another person. Be prepared to deal with a corporation and all the red tape that entails, including long wait times -- foreclosed properties can take up to six months to fully close -- and limited flexibility to negotiate.
2. It’s all about the bottom line
In a normal sale, there’s some wiggle room on the sale price. The seller sets a price that they think is fair, and you have the opportunity to go back-and-forth with them until you can reach an agreement. With a foreclosure, the bank has already lost money on their investment. They have a firm bottom of what they’ll accept on price -- and they won’t budge.
However, sale price isn’t the only financing component you need to consider. How you’ll pay for the property is also a place for concern. Often, these properties go to investors who are able to to pay cash outright. If you’re planning on getting a mortgage, you may want to consider offering more money to compensate for the extra legwork that comes along with getting a loan.
That said, I can tell you that being approved for a mortgage on a foreclosure isn’t always the easiest thing to do. Mortgage companies tend to see these properties as liabilities and many are hesitant to finance them. If you can buy without a mortgage, that’s the way to go. If not, be sure to research companies that explicitly allow for this type on financing.
Keep reading about the things you should know before purchasing a foreclosure.