If you are considering a renovation project, you want to get the best price on a property and you’re not afraid of a little hard work. Therefore a foreclosed home might be on your radar.
These properties often require repairs and are priced to sell, making them an attractive option for renovators. However, it’s not all pros when buying a foreclosed property. Navigating the foreclosure process can be tough. So, weigh your options before plunging into buying a foreclosed home for your next reno project.
What is a Foreclosed Home?
A foreclosed home is a property that has been seized by the bank or lender, after someone has defaulted on their mortgage. When someone takes out a mortgage on a house, they are using their new home as a security for the loan.
If a borrower fails to meet the agreement set forth in the mortgage terms, namely to adhere to a payment schedule, the lender can take legal action with a foreclosure lawyer to seize the house. They then put it on the market to recoup their costs.
Things to Consider When Buying a Foreclosed Home
Before you get your hands dirty with a renovation on a foreclosed home, consider what it really means to buy one. Sales of a foreclosed home are not as straightforward as they would be if you were buying a traditional property.
Budget is one of the most important things to consider when planning a reno. More often than not foreclosed properties are more affordable to buy than a move-in-ready home. The lender typically wants to sell fast since they need to recoup their money for the mortgage which was not paid.
Also, these homes often require repairs and tend not to be in the best condition. This helps to knock some money off the cost of the house when compared to move-in-ready homes.
In some cases, foreclosed homes go to auction rather than being sold on the market. These can be very affordable. However, there is a lot of risks involved because you can not perform a home inspection or examine the title before making a purchase. Proceed with a foreclosure property at auction with extreme caution.
Buying a foreclosed home can come with a lack of certainty and a longer timeframe. It is unlikely you will be able to begin work on the property right away. The process to buy a foreclosed home takes longer when compared to buying in the traditional way.
First time home buyers should avoid buying a foreclosed home. Experienced home renovators and seasoned investors tend to be more comfortable with this unique selling situation.
If a homeowner gets into the position where they have defaulted on their mortgage, it is unlikely they have had the financial backing to keep up on repairs. Therefore it is extremely important to be thorough in your inspection of the property.
Have your renovation crew visit the property with you to take account of all aspects of – from electrical to plumbing and finishes. This can also help you budget for the project.
Enlist the help of a real estate lawyer to get a hold of the certificate of title. This will give you more information about that property which might not be physical. This includes if there are any liens on the house or other registered interests which might impact the sale.
All in all buying a foreclosed home takes significant work, but it can pay off if you approach it with caution. If this is not your first renovation project, a foreclosed home might just be the budget-friendly property that you are looking for!