When a homeowner stops making regular mortgage payments, the bank can foreclose on the property. This means that the bank takes possession of the property in an attempt to recover the debt the homeowner owes. In some cases, the bank may try to recover this debt by selling the property at auction. In other cases, the bank will simply list the foreclosed home for sale.
Choosing to purchase a foreclosed home has both advantages and disadvantages for the buyer. Weighing these advantages and disadvantages carefully is essential.
Pros of Buying a Foreclosure
When you decide to buy a foreclosure, you will be working with a seller that is inherently more motivated. The longer the bank owns the property, the more money they lose. For this reason, banks are often more willing to negotiate on all of the terms of the sale, including the price, closing costs and other important factors.
Buying a foreclosure also ensures that you are getting a house that is already vacant, so you can move in whenever you are ready. In addition, you can be sure that the title on the home is clear.
In most cases, you will be able to finance a bank-owned foreclosure with a mortgage, and you will be able to obtain an inspection if you want one.
Cons of Buying a Foreclosure
Buying a foreclosure also comes with disadvantages. For example, banks usually require additional paperwork when you are purchasing a foreclosed home.
In addition, most banks will refuse to complete any repairs on the home before the purchase. Most foreclosed homes are sold as-is, which means you may have to repair some problems or do some updates after you buy the home.
Finally, because the bank has only owned the home a short time, they cannot provide comprehensive disclosures related to the property’s current condition or history. This means that you may end up purchasing a home without being fully aware of the problems you’ll need to address.
Making a Choice
Buying a foreclosure isn’t the right option for every buyer. However, if you are a careful shopper, potential benefits are available.
Before making an offer on a foreclosed home, be sure to consult an experienced mortgage professional to get your pre-approval in order so you can complete the purchase quickly if you choose to move forward.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.