After the financial crisis of 2007-2008, many homeowners have had their properties repossessed as they struggled to keep up with their mortgage payments. Though losing a home to foreclosure is the final act of the homeownership drama, could foreclosures give first time home buyers the opportunity to get on the homeownership ladder?
Buying a Foreclosure: Is It a Wise Decision?
Before placing an offer on a foreclosed home, a first time home buyer should consider the following four problems most foreclosures involve.
1. Hidden Damages
One of the most important things a home buyer should be aware of before buying a foreclosure is that these properties are repossessed because former owners are no longer able to make their mortgage payments. But this means they cannot afford to make repairs either. Therefore, most of these homes are poorly maintained. And the biggest problem is that, when repossessed properties are sold at auction, home buyers rarely get the chance to enter homes and assess their condition.
Even when a home appears to be in a good state, it can hide a series of problems like missing floorboards, broken window handles, blocked toilets, water damage, no electricity and the list can go on. Once someone buys such a house, he will have to cover unexpected repair costs that can run into thousands or tens of thousands of dollars.
Tip: Home buyers should never take everything they see for granted. For someone new to the foreclosure market, the best advice we can give is to look for real estate owned (REO) properties. Besides being free of liens and former owners, most of these properties can be inspected, which allows potential home buyers to estimate the overall cost of repairs.
2. Title Defects
Title problems such as liens, judgments or encumbrances placed on foreclosed homes by contractors, homeowners associations, ex-spouses and the like may affect the value and marketability of properties.
Tip: To avoid problems that may blossom into unpleasant surprises later on, a person interested in buying a foreclosure should hire a title company to perform a title examination on that particular property. If any title problems are found, they must be investigated and remedied before closing on the home. Also, home buyers should investigate the right of redemption, which allows previous owners to reclaim their homes within a certain time frame, provided that all past-due amounts and penalty fees have been paid.
Though vandalism is against the law and quite uncommon in foreclosures, deliberate vandalism has been reported across the country. After all, having a house repossessed can be an unpleasant emotional experience for the former homeowner. So, when the time comes to leave the house, a resentful owner may decide to trash the place before he is evicted.
Tip: Besides the damage caused by former owners, abandoned homes may be vandalized by others. In high and moderate crime areas, vandalism is often a noteworthy red flag for neighborhood safety and security.
Preliminary mortgage approval is actually the first step a home buyer interested in buying a foreclosure should take. In this real estate market niche, getting pre-approved (not just pre-qualified) is important not only because sellers prefer to close deals with buyers who have already secured financing but also because good deals are snatched up very quickly.
Tip: Getting pre-approved for a mortgage before starting to look for foreclosed homes will place a home buyer in an advantageous position. In addition, since a pre-approval creates no obligation whatsoever, the applicant is free to get a mortgage from another lender.
To see if you would qualify for a home loan before you actually start looking for foreclosed properties, contact us at North Florida Mortgage. Our experienced mortgage originators are ready to help you get the ball rolling on your mortgage pre-approval process.