Buying a foreclosed home can be a positive experience, but it can also turn into a total disaster. Much of the difference between these two outcomes stems from the buyers’ knowledge of how the foreclosure buying process works and understanding their own ability to maneuver around the kinks in the system within their own means. A foreclosure is not like a regular home sale, and you can’t assume the same protections that you would have buying a home off the standard housing market. It’s best to consult with an experienced agent or real estate lawyer before putting a drop of ink on foreclosure purchase paperwork, but the following are some basics that should give you a bit of foundational knowledge.
A foreclosure is sold in “as-is” condition.
Are you handy, or in a financial situation to hire someone who is? A foreclosure is sold without inspection, and sometimes even without a walk-through. Buyers of foreclosures have to accept that they may not know what they are getting into and that the worst possible scenarios are not uncommon. Vengeful owners, knowing that the bank is going to take the house away, have been known to strip the house of copper piping, remove cabinets, and sell anything that isn’t bolted to the floor (and even sometimes that as well). You might be getting the house for a sweetheart deal that turns sour when you walk in and assess how much damage there is and the costs it will take to make the house livable.
Many lenders won’t finance a foreclosure sale.
A lot of foreclosure purchases are cash deals. If you don’t have six figures of liquid assets lying around, you will need to find a lender willing to finance your purchase. It’s not nearly as easy as finding a mortgage lender for a “regular” home. You’ll need good credit, just as is the case with a traditional mortgage, with a score of 620 bring the “magic” number for qualify. Obviously, the best interest rates are reserved for those with the best credit scores. Under the right circumstances, you may be able to qualify for an FHA loan on a foreclosure.
Move-in day may be a distant goal.
Foreclosure purchases can take a long time to sort out. Unlike normal home sales, which can close in thirty days (or less!) under the right circumstances, a foreclosure deal may take several months to wrap up. The reason for this is twofold: bank employees are swamped with paperwork, and there’s no rushing the process; and also, there can sometimes be issues like liens against the property that take a while to deal with. In other words: don’t purchase a foreclosure with the hope of moving in by next month.