In the past few years, many Americans have been snatching up foreclosed properties at record prices, especially because they’re usually sold far below the market rate. You’ll be hard pressed to find a property that’s bigger, more centrally located and with more potential for the same deal. However, with the seemingly endless number of pitfalls associated with foreclosures, is buying one really in your best interest?
The Disadvantages of Buying a Foreclosed Property
State of Disrepair
Homes are primarily put in foreclosure if their owners are unable to keep up with monthly payments. That could also signify that they didn’t have the available funds to keep up with regular maintenance as well, meaning most foreclosed properties aren’t going to be in the best shape.
Most of the time, you’ll need to make significant, wholesale repairs just to make it safe to live in. In these cases, you will also need to figure out living arrangements until the property is inhabitable.
For many people, the structural damage found in most foreclosures is too much to deal with. There’s potential for mold buildup, vermin or bug infestations and broken pipes, all issues that require a great deal of time and money to rectify. And since most properties are sold as-is, all repairs become your sole responsibility.
More often than not, when you purchase a foreclosed property, all of the debt associated with the home becomes yours. So, that means you inherit any unpaid tax obligations, home equity lines of credit or construction liens.
Not to mention, finding the proper financing for a foreclosure can be a nightmare since they usually require non-standard loans. Besides, some lenders won’t even offer financing options on distressed or run-down properties.
Furthermore, finding the appropriate mortgage amount and appraised value might be difficult since the home’s disrepair will lead to a far lower valuation than it would normally receive.
Other Potential Pitfalls
Keep in mind that foreclosed properties are usually in high demand. You may face steep competition when trying to purchase one. Since they present such a great value for those looking to put the work in, many might even garner all-cash offers, which are a much more preferable option for sellers.
Last but not least, if you’re buying a foreclosure, you should be prepared for a long, arduous, frustrating journey with a lot of red tape along the way. You’ll also have to be ready for extra paperwork and slow response times from start to finish.
If you’re looking to purchase a home and are considering a foreclosed property, make sure that you’re aware of the many drawbacks associated with them.