First Time Homebuyer: The Pros and Cons of Opting for a Foreclosure
Click here to start your 100% FREE Property Finder trial.
Are you a first time homebuyer who is looking to make your first home purchase? If so, you are likely going to take a close look at bank owned foreclosures. These are properties in which the current homeowner has defaulted on their mortgage; the ownership of the property has reverted back to the mortgage lender. Mortgage lenders are not in the business of maintaining homes; therefore, most attempt to quickly sell off bank owned forecloses at a reduced rate. As a first time homebuyer, this typically means that you get a great deal. On that same note, opting for bank owned foreclosures does have its pros and cons.
The Pros
Great Deals: As mentioned above, bank owned foreclosures typically result in a good deal for the buyer. This is due to the fact that mortgage lenders lose money whenever a home sits unoccupied and unpaid for; this unoccupied home get more costly each day. Therefore, an attempt to sell off the home is made. Generally speaking, mortgage lenders will attempt to sell the home at a price where they are able to recoup all or most of their loses. So if a home is valued at $100,000, but the defaulted mortgage has an outstanding balance of $65,000, you’ll likely find the foreclosure listed for sale at $75,000. This price is negotiable and a foreclosure auction is often the next step if the home does not outright sell on the market.
Easy to Find: Unfortunately, the fact that foreclosures are easy to find now is also a downside in the fact that you are benefiting from someone else’s hardship. With the economy still working its way up, hardworking Americans are still losing their homes due to reduced hours at work, pay cuts, and layoffs. There are more properties that are owned by the bank now than there were ten years ago. Whether you talk to your realtor, watch for auction ads in the local newspapers, or do a search on a free foreclosure website, you are sure to come across at least a few properties.
The Cons
Competition: As previously stated, bank owned foreclosures are often easy to find. With that said, it all depends on a number of factors, including where you are looking to buy a home. Some states and cities are more prone to forecloses than others. A large city may have 1,000 homes listed as a foreclosure and a small town may have just one. It is also important to note that a lot of competition is found at foreclosure auctions. In addition to other first time homebuyers like yourself, you’ll also find a large selection of real estate investors at these auctions. Be prepared to wheel and deal, but know when you good deal is no longer a good deal.
Condition: It is important to note that most foreclosure properties are in good shape, but a growing number of homes are in rough condition. It is important to remember that if a homeowner cannot pay their mortgage, there is a good chance that they cannot also afford the costs of maintenance, repairs, and general upkeep. Rarely are you allowed to tour a home inside beforehand; therefore, a large gamble is taken.