In their desire to keep debt down, some homebuyers explore the option of buying a foreclosure. It’s certainly a viable option, but there are pros and cons to consider. Be sure to give serious thought to both and talk to a mortgage expert before making a decision. Here are just a few considerations when deciding what’s best for you.
Pros
- More for your money: Because foreclosures are frequently sold below market value, you may be able to get a deal, which means more house or a better neighborhood for your money.
- Immediate equity: If you are able to buy a foreclosure for significantly less than it is worth, the difference between what you paid and the home’s value becomes instant equity.
- Opportunity to increase the home’s value: If the home is in need of repair – and foreclosures often are – you’ll increase its value and have even more equity once you fix it up.
Cons
- Costly and unforeseen repairs: Foreclosures are often in disrepair; if the homeowner couldn’t afford the house payments, house maintenance was probably also neglected. Also, some foreclosures are left empty for a long period of time, meaning needed upkeep is left undone.
- Difficulty in securing a mortgage: Some financial institutions don’t offer financing for distressed properties. Also, a conventional mortgage “will be limited by the appraised value of the property,” which can be a problem in the case of foreclosed homes because their disrepair can mean low valuations, and there are usually requirements for the property’s condition, presenting a potential complication for a foreclosure sold as is (homefinder.com).
- Tricky timeline: In the case of a short sale – when the proceeds from selling the property “are less than the amount owed on the property” (investopedia.com) – “you’ll be waiting on all parties with an interest in the home” (homefinder.com). Keep in mind that most lenders have time limits on rate approvals, so “waiting for a response could result in less favorable mortgage terms if your approval expires and rates increase” (homefinder.com).
Ultimately, there are risks associated with purchasing a foreclosed home, but there are usually benefits as well. Whether you’re looking at a foreclosed home, a more traditional purchase or new home construction, we welcome you to talk with the knowledgeable people in our lending department. They’re ready to answer questions and help you take the next steps in your home purchase. Give them a call today!