Looking to buy a home but feel constrained by your budget? A foreclosed home could be your answer. These types of properties offer some of the best deals out there. Granted, they do come with downsides but not as many as most people think. To set the record straight, here are five myths about buying a foreclosed home.
1.) They Can Only Be Bought with an All-Cash Offer
This is partly true, but only when you’re buying through an auction. Foreclosures come in different stages and depending on what stage it’s in the buying process will differ. A home that’s been fully foreclosed and is being sold at auction usually requires an all-cash offer with no mortgage contingencies allowed. However, if you can buy a property that’s in pre-foreclosure or “short sale” then you won’t need an all-cash offer. Bank-owned properties like this are sold just like any normal real estate transaction. Meaning they can be bought with a mortgage. That said, there are cases where the bank will prefer all-cash buyers. But this only tends to be when the property is in such dire condition that the bank knows this will make it hard for a buyer to get financing.
2.) You Can’t Get a Home Inspection
Again, this is only true when buying through a county auction. Pretty much every bank-owned property that’s on the open market can have home inspections done. In fact, banks will even encourage interested buyers to get an inspection. That’s because foreclosed homes as sold as-is and the bank wants to avoid later liability. Just know that if issues are found there is no guarantee that the bank will pay to fix them. Problems that impact the safety of the home might be repaired but this really depends on the bank. The inspection is just meant to give the buyer’s full disclosure of what they’re buying. Whether they wish to accept it or not is up to them. Make sure you include an inspection contingency with any contract you sign.
3.) They Always Require a Huge Overhaul
Since foreclosures are always sold in as-is condition, many people assume they’re always in a shoddy condition. This can be the case but not nearly as often as most think. A large percentage of foreclosures are the result of illness, job loss, death, divorce or fluctuations in the real estate market. This means most of these homes were well-maintained before the foreclosure. At most, you might only be looking at a few cosmetic fixes.
4.) You Can Lowball the Bank and Get a Huge Discount
Since banks are usually desperate to unload a foreclosed home, it’s easy to assume they’ll accept any offer. It may be true that banks have no interest in owning these properties, but they still need to make enough to service the defaulted loans. Various groups of investors hold banks accountable for this and will want to get the highest price possible. Sure, you can definitely get a deal with a foreclosure purchase. But hard lowball offers are unlikely to be accepted. Instead, listen to the advice of your Exclusive Buyer Agent on what offer price to make. This will take account of the properties condition, the current market, and the minimum amount the bank is looking to make.
5.) Foreclosures Loose Value Faster than Regular homes
This is commonly repeated but doesn’t tell the full truth. Because foreclosed homes often sell at a lower price than the market value, they actually provide some insulation against further depreciation. There’s no guarantee that they will deliver increases, but they can provide instant equity. Additionally, any extra work done on the home will only increase its value. Whether a property loses value or not depends on a lot of factors such as the housing market, the economy and the overall state of the property. Not whether the home was or wasn’t a foreclosure when it was purchased.