Buying a foreclosure can seem like a great way to get a new home without having to pay quite as much as you would for a more traditional property. Before you buy a foreclosure, though, you'll need to learn a bit more about the process. Buying a foreclosure can be a good choice, but only if you understand what doing so entails.
How to Buy the Home
There are two methods of buying a home that's in foreclosure. The first is buying a house at auction. This is uncommon for those not in the real estate business, as it requires you to be able to buy the house immediately with money that you have on-hand and you get no chance to inspect the property beforehand.
More common is buying a Real Estate Owned property. In this case, you go through much of the normal process of buying a home, but the owner is typically the bank. Though there are some differences, you can finance the buying of one of those homes with a traditional mortgage.
Note that in either case, you won't really be negotiating with the bank on the price or on the state of the property. Because the individual who owned the house previously already defaulted on the loan, the bank isn't really in a position where it can take more of a loss. It's rare to see a foreclosure drop in price when you make an offer, and banks never pay for repairs or renovations. As such, you need to know whether you can deal with paying for the cost of the home plus any renovations that need to be done.
The Cost of Repairs and Upkeep
Though you won't get to negotiate on the price or get the bank to cover the cost of repairs, you can and should still get an inspection done. This will largely be an informal process, as getting the inspection will only tell you what you need to do to the property rather than what you should bring up with the owner. Still, it's best not to walk into a foreclosure sight unseen unless you can't avoid doing so.
The Importance of a Title Search
Finally, it's important that you still do your due diligence to ensure that the property has a clear title. Foreclosure typically happens because the individual who took out the mortgage on the property was unable to satisfy his or her commitment to the lender. Given that he or she defaulted on the loan, it's not impossible that he or she may have defaulted on other loans that would lead to liens being placed on the property. If you choose to buy the foreclosure, you'll be responsible for any debts attached to the property.
Before you buy a foreclosure, make sure you understand how to buy the property and what doing so will mean for you financially. Don't skip a title search or an inspection, and be ready to spend some money on renovations. While buying one of these homes can be risky, it can still pay off for those who are properly prepared.