What You Should Know About Buying a Home in Foreclosure
July 27, 2023
July 27, 2023
Buying a home in foreclosure can be a more affordable option for homebuyers who don’t mind making renovations and repairs, but it is important to understand the risks involved with buying a foreclosed or distressed home.
A foreclosed home is a property that has been reclaimed by a lender after the previous owner defaulted on their loan. In many cases, these homes can be in distressed condition or have deferred maintenance. Once the lender has taken ownership of a home, they typically try to sell it as quickly as possible to recoup their losses. The condition of the home as well as the lender evaluating the cost and time to sell the home may lead to foreclosed homes selling for less than other homes on the market.
Foreclosed and distressed homes are more likely to be in need of significant, and sometimes costly, repairs. However, if you understand the risks involved, these homes can be a great opportunity for buyers who want to give the home a second chance and invest in “sweat equity”.
You should consider this option even if your first choice is a ready-built home or new development. In addition to a lower purchase price, there are other benefits of buying a distressed or foreclosed home:
While the benefits are enticing, you should always keep in mind the potential risks of buying a home in need of significant repairs or renovations. As costs can add up quickly and some repairs may become more complicated than originally thought, you should always obtain a home inspection prior to purchase.
Once you’ve decided to go the route of purchasing a distressed or foreclosed home, your first step should be to conduct an in-depth home inspection. The inspection will help you identify and prioritize areas that require attention and repairs.
The traditional homebuying process requires a pre-purchase home inspection, but you should expect a more in-depth inspection for a foreclosed or distressed home. Priority areas should include:
If you are interested in buying a home in foreclosures, there are many resources available to find listings near you. The U.S. Department of Housing and Urban Development (HUD) also maintains a list of available foreclosures from various federal agencies.
You can also find foreclosure listings through Freddie Mac’s HomeSteps. The site’s entire inventory of single-family homes, condominiums, duplexes and townhomes is available here for you to browse.