A Multi-Family Home

Is A Foreclosed Home Right For You?

by Arnold Gomez

Most buyers are in search of a bargain and homes that are in foreclosure (or that are about to be) are often just that. While bargains are possible, you should also take into account the potential downfalls of dealing with foreclosed properties. Read on for some guidance and be forewarned about taking advantage of a foreclosure deal.

The Seller Is Motivated Due to Financial Issues

You can often find sellers who are not yet in hot water with the lender but who are definitely feeling some financial stress. If the seller can see foreclosure coming, they are likely very eager to avoid that by selling the home quickly. That can mean a good deal on the price for buyers. As long as foreclosure actions have not yet begun, you should be able to cope with any negatives relatively easily. If the seller is behind on payments, the purchase price must take that into consideration because the old mortgage must be satisfied. Desperate sellers are often willing to make concessions but only if they are financially able to do so.

A Short Sale Situation Arises

When the seller owes more money than the home is worth, that is called a short sale. Buying a short sale home is not impossible, but can be challenging. In some situations, the lender will agree to accept a lesser sum of money to pay off the mortgage if the alternative is foreclosure. Lenders hate to hold real estate through foreclosure so a buyer that is willing to at least pay a decent sum for a home can help prevent that from happening. Some short sales take longer to close and lenders can be pickier about approving loans on these distressed properties.

The Home Goes to Auction

Once the bank forecloses on the home, an auction will likely result. Auctions are the quickest way for lenders to rid themselves of property, and they don't always expect to make a profit on the sale. While that can mean a good deal for buyers, auctions are not for everyone. Here is what to know about a real estate auction:

1. Buyers usually have to have a certain amount of cash on hand to pay auction fees and the down payment. With some auctions, buyers must pay the entire purchase price of the home with cash. Be sure to understand the terms before you bid on a home.

2. You may not be allowed to view the home on the inside and must evaluate it by peeking in the windows.

3. Inspections may or may not be allowed.

4. Some previous homeowners leave behind damage and strip the home of anything of value.

Distressed properties are best dealt with the same you do with any property – with the help of local realtor services. Talk to your agent about the above opportunities for snagging a great deal on the home of your dreams.