If you’re one of the countless people looking to invest in a new home this year, there has been no better time to buy. According to Forbes, the first half of 2019 has been going swimmingly for first-time homebuyers and real estate investors alike. And the second half of 2019 is looking just as good.
“First-time buyers can expect less competition than last year, but it’s still very much a seller’s market in most places,” notes deputy chief economist for CoreLogic Ralph McLaughlin. “[This year] seems to be shaping up as a good time for potential first-time buyers to enter the market, with no current signs of imbalance that would either force them to hurry or cause them to pull back.”
Additionally, homeowners who are a part of a homeowner’s association have reported that they are “overwhelmingly satisfied” with their communities for the seventh time in the last 13 years. It only makes sense that new potential homeowners are looking at properties with renewed vigor in 2019.
In fact, up to 42% of first-time homeowners are actually Millennials this year. If you’re looking to save some money on a final home purchase, however, you may have considered the possibility of a foreclosure. But what is a foreclosure? And what are some of the perks and pitfalls you might experience when investing in this type of property?
Here are some of the most important facts regarding this type of property to help you make an informed decision when you enter the real estate market.
What is a foreclosure home?
A foreclosure home is a type of property that has been repossessed from the previous homeowner by the bank or mortgage company. This primarily occurs when the previous homeowner was unable to make the necessary payments on the home. However, that doesn’t mean that the owner was arrested for fraud. Just about anyone could potentially lose their home if they’re under financial duress. When the bank repossesses the property to settle the debt, the homeowner loses their investment and all rights to the property.
As such, foreclosure homes typically sell for 15% cheaper than they normally would on the market. This is because it’s assumed that the previous homeowner couldn’t make the necessary home repairs and maintenance on the property if they also can’t pay their mortgage bill. This often occurs in much older homes, too. If the house was built when the Carroll Shelby was made back in the 1960s, you know it’s going to need some tender loving care. Because realtors know this property may be a little harder to sell, they often lower the price to make it an appealing buy for DIY homeowners. Unfortunately, this often means that the final sale is “as is,” regardless of condition. That means any HVAC issues with contaminants or damaged areas are yours, for better or worse.
The problem with some foreclosures
As such, it’s not uncommon for a foreclosure home to need a significant amount of work. Even though some concrete structures can last for over 100 years, that doesn’t mean that they needed maintenance along the way.
The worst part? The bank won’t disclose all the information on the house. Sometimes, you can get a home inspection before putting down an offer, but more often than not, this won’t be the case.
“On the surface, foreclosed homes can seem awfully appealing,” explains Beatrice de Jong, the current consumer trends expert at Opendoor. “However, costs can be extremely unpredictable, and underlying damages could make a property undesirable.”
This might not be a problem for homeowners looking for a fixer-upper, but for those who want a move-in ready home, this could be a huge problem. After all, experts estimate that more than 35% of Americans are already overpaying on their federal taxes by more than $500 per year. While taking online classes to learn more about taxes and tricks for saving money can help, those who don’t have the funds to repair a foreclosure home might be too much to pay despite the low initial price point.
Foreclosure vs short sale: What’s the difference?
Another popular homebuying option is a short sale, though these options are often confused with each other. A short sale is a home that hasn’t yet gone into foreclosure but might in the near future without intervention. In this case, a mortgage lender might be willing to accept less money for the home than the outstanding mortgage balance demands.
When this occurs, the mortgage lender is typically willing to accept less in order to avoid foreclosure fees. In other cases, the lender may also have worked out a deal with the current homeowner to settle the amount on their own. These properties might be a good option for those who want are willing to pay a little more for a nicer home, though there’s no guarantee it will have fewer problems than a foreclosure.
How do I buy a foreclosure home?
According to Bankrate, there are five primary steps to buying a foreclosed home. These include: relying on an agent with experience in foreclosures; getting a preapproval letter from your bank; looking at comparable properties; managing your bid; and being prepared for an as-is property.
Because these properties are owned by the bank, there won’t be anyone to help you fix issues with the home. But that doesn’t mean you can move quickly. If other foreclosures in your area are going off the market quickly, you might want to buy sooner than later. After all, Americans are already wasting more than 42 hours in traffic each year. Instead of hemming and hawing over a final purchase, an experienced agent can help you make that final decision. That’s why it’s vital to lean on foreclosure experts for inside information. If you don’t follow these steps, you might find that you’ve sunk money into a home that isn’t worth it.
Investing in any property can be a game of chance. When you’re thinking about buying a foreclosure property, rely on these tips before making that final purchase.
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