People who are looking for good deals in the real estate market may find they can buy a cheap house that a bank has foreclosed on. It is true that purchasing a foreclosed property could fetch a smaller price. However, you might end up spending more than you had bargained for in other ways.
If you proceed with a purchase on a foreclosed house, you should do it with a firm understanding of how to avoid a potential money pit.
The home may be in poor shape
Since the previous owner was unable to keep up mortgage payments, lenders typically want to dispose of the house and recoup their money as quickly as possible. Unfortunately, an owner who was strapped for cash likely could not keep up the home. Therefore, you might find yourself with a house with significant repair or renovation needs.
The bank may not pay for repairs
Generally, people get a home inspection so they can find out about property issues and ask the seller to fix them. However, banks often sell foreclosed homes “as-is.” This means they will sell the home in its current condition regardless of its problems. So whatever foreclosed property you get, you will likely have to repair out of your own funds.
Foreclosed homes may go at an auction
After a bank completes a foreclosure, the lender could opt to auction the property. Auctions may help you fetch a home at a low price, but you also run the risk of getting a home without the opportunity to inspect it first. Also, you might not discover liens on the home or other title defects before you purchase it.
The wiser option in buying real estate is to learn everything you can about the property before committing to a purchase. Even discounted deals may not save you money in the long run if they involve a home with significant problems.