Purchasing a foreclosed home isn’t just about paying an all-time-low price that you can afford. The purchase, no matter how cost-effective, is a long-term investment and requires thorough research. You will need to consider its benefits, caveats, and the procedures in place to buy the home. In this article, you can find out several aspects regarding listings for foreclosure, including its exact meaning, various sale options, its advantages, and disadvantages.
The Meaning of a Foreclosure
When a mortgage is taken on a property, the contract comes with a lien. The lien allows the lender to take control of the home if the homeowners stop making the mortgage payments and default on the loan amount. This seizure of property is known as foreclosure. There are, however, multiple stages in a foreclosure:
Payment default and notice of default
A payment default occurs when the homeowner has missed at least one payment. After 90 days of missed payments, the lender issues a notice of default. If they (homeowner) miss payments for several months, their mortgage defaults and leads to the pre-foreclosure initiation stage. Further, homeowners are given the option of a new payment plan to help make missed payments.
Notice of trustee’s sale
Once the home is foreclosed, the lender needs to record the impending sale with the respective county and publish it as news in the local paper. Though this is one method of buying a foreclosed home, it is easier and quicker to search for them online.
Trustee’s sale
After placing the ad, the lender attempts to sell the property at an auction.
Real estate-owned
If the home does not sell at an auction, the bank involved becomes the owner. The bank then attempts to sell the property. The stage is also the one where buyers generally purchase the foreclosed home.
Options for Buying a Foreclosed Home
Now that we’ve understood how a foreclosure occurs, let’s take a look at the ways you can purchase a foreclosed home.
Short sale
A short sale is when the homeowner puts their home up for sale at a lower price because of a declined value. Also, the foreclosure process is not yet complete, and the homeowner is still the owner. So you would need to discuss all purchase details with their realtor and get the offer approved from the lender. The process is time-consuming.
Auction sale
An auction may help you purchase a home much faster than negotiating with a bank or seller. If you’re lucky enough, you may even get the deal at a lower price than the market value at the auction. But it is recommended to carry cash for purchase because it’s the primary form of payment most foreclosed home auctions prefer. Also, when you purchase the property at an auction, you agree to buy the home without an inspection, which is risky. Therefore, speak with a real estate agent attorney to help safeguard your purchase interests.
Lender sale
The homeowner and their title are normally removed from the property by the time you speak to a lender. And though these homes are available for purchase from a real-estate-owned (REO) inventory, a lender may not sell it to you directly. Therefore, it’s advisable to speak to a real estate agent for a list of what’s available. Speaking to an agent may get you access to view and inspect the property before the purchase.
Advantages of Purchasing a Foreclosed Home
When it comes to buying a foreclosed home, you are eligible for certain benefits. Read about them below:
Available loan options
As long as it’s not a cash-only auction, you might be entitled to a few loan options. These include a conventional loan, a government-backed VA loan, a USDA loan, or an FHA loan.
Low price
A foreclosed home tends to cost lesser than the other properties in an area and may even be listed below market value.
Disadvantages to Purchasing a Foreclosed Loan
There are certain disadvantages to purchasing a foreclosed home that you should be aware of. Here are some of them below:
“As-Is” sale
Since the seller wants to finalize a deal as soon as possible, they will often list the home on an “as-is” sale. The sale does not allow you to inspect the property. What’s more, the previous homeowner has no reason to maintain the property, so they might refrain from spending on repairs. For this reason, it is advisable to make the purchase with caution and keep money aside for maintenance.
Squatter’s rights
When a home is foreclosed, the premises may remain unoccupied for months or years. There’s a possibility of squatters turning the property into their home. Though they have no claim to the land, you will need to evict them legally. The legal process can go on for months and cost you thousands in attorney fees.
