Buyer Beware: Learn About Foreclosures Before Purchasing

By: Lee Bell

If you are trying to save money when buying a home, now is a good time to explore foreclosures. The number of homeowners foreclosing on their homes has dramatically increased in the last few years, and while that is not usually a plus for the economy, it could be a great opportunity for you. Whether you want to buy your first home for a good deal, or are involved in the real estate market in some way already, learning a little more about foreclosures can always help.

Save Money with a Foreclosed Home

If your ambition is to buy a property without breaking the bank, it can be done with a foreclosed property. Most foreclosed homes are resold at about 25 percent below their typical value on the market. However, saving money immediately may come at a price in the long-term. Initially, you typically need to have the entire amount of the cost upfront at the home auction, usually in either cash or a cashier's check.

When you bid at the auction, you also do not usually have admittance to the home, so you cannot see what you are getting. You might know the floor plan and what the exterior looks like, but you do not know what the inside looks like, or what other problems the home has. For example, its previous owners could refuse to vacate the home, forcing you to pay to take legal action. There could also be issues with the title, or liens on the home. There could be expensive repairs to make that you can only see from the inside of the house. If you are the winning bidder, you might have to handle such problems, so there is a risk.

Suggestions for Getting the Most Out of a Foreclosure

If you are still interested in buying a foreclosed home, it is prudent to learn from the experiences of other people when it comes to such a big decision. One of the more careful ways to buy a foreclosed homes is to consider the history of the former owner.

For instance, if the previous owner of the home bought the house with no money down, or has owned it for less than two years, you will probably not save much money when you buy the house, even though it is a foreclosure. For the reason that there will not be much equity accrued yet. Try to only consider homes %previously% owned by people who put at least 10 percent down and have owned it for at least a few years.

On the whole, foreclosures are prudent for investors to explore, since they will not be troubled about small details that they may or may not like about the house, condition of schools in the area, or the attributes of the neighbors. Most professionals concur that if you plan to live in the house for a while, buying a foreclosure is risky. However, if you find a house that seems just right for you, you have the money up front, and it turns out to be a foreclosure, there is the added bonus of saving some money while obtaining your dream home.