Foreclosure auctions sound appealing to buyers given the prospect of getting a discounted price on a home. However, the term “foreclosure” is often mistaken for “bank-owned.” Buying a true foreclosure means buying a home at auction. This process is not ideal for first time buyers and here are a few reasons why.
1 – Sight Unseen
Auctioned homes are not readily accessible. This means that you may have to bid on a foreclosed home without having an opportunity to see it. You might be able to view just the exterior with a drive-by, but interior access is rare. If you’re lucky, there may be old listing photos of the home that show the layout and other key features. Keep in mind, however, that these photos may not reflect the current condition of the home.
2 – Condition Unknown
Homeowners who face foreclosure typically experience financial hardship for months or years beforehand. Therefore, home maintenance and repairs may be neglected. Without viewing a home’s interior, there’s no way to tell its current condition. There’s quite a bit of uncertainty when it comes to foreclosed homes.
3 – Financing Not Possible
Another complicating factor of foreclosures is the ability to obtain mortgage financing. Mortgage loans require an appraisal. Without access to a property, this may not be possible to complete. Additionally, the condition of a property may be problematic unless you are getting a rehab loan.
4 – Long-term Concerns
Beyond the initial concerns about a property’s condition, there are also some long-term concerns to be aware of. What latent defects may exist that are not readily apparent even when a property is viewed by an experienced professional? This risk exists with regular homes but is heightened in foreclosures.
If a property was vacant before foreclosure, how long was it left vacant? If it was unoccupied during winter months, was it winterized? Researching a property’s history can provide helpful insights. Consider speaking with neighbors, real estate agents, and others who may be familiar with a property.
5 – Unexpected Expenses
Another key consideration when buying foreclosures are unexpected expenses. Many of these do not apply to typical home purchases, so they are unique to foreclosures. For instance, you may be responsible for back taxes, unpaid liens, eviction of occupants, etc.
Are Foreclosures a Good Idea for First Time Buyers?
Now that you know the dangers of buying a foreclosure, you can decide whether it’s the right choice for you. For most first-time buyers, foreclosures are not the ideal choice. Instead, it makes more sense to purchase bank-owned properties.
When a property does not sell at foreclosure, the bank completes the process of taking ownership of the home in order to sell it, thus making it a bank-owned home. Bank-owned homes are accessible for showings, inspections, and appraisals. They also are free of unusual liens, making them much less risky than a foreclosure.