BUYING A NEW HOME VS. A FORECLOSED HOME

Certainly, a large number of foreclosed homes in today's market offer substantial discounts. Even though the discounts are enticing to homebuyers, they may not be worth the risks, headaches and strain on the wallet in the long term. While homes in foreclosure often appear to present lower prices than neighboring homes, there are certain risks that you need to be aware of.



IF YOU ARE A FIRST TIME HOMEBUYER.....KNOW ALL OF THE HIDDEN COSTS.
Think hard about making a foreclosure purchase your first home buy. An experienced homeowner may better understand and manage the obstacles that come with buying a foreclosed home. Previous homeownership provides an education and valuable lessons in the true cost (time and money) of owning a home, beyond the monthly mortgage payment.

A foreclosure deal may be loaded with surprise expenses. Foreclosed properties are often in disrepair, and can have titles encumbered by judgements, liens, and other attachments that may need to be paid off to seal the deal. The homework necessary to research the market and property can cost you even before you begin to negotiate.

Existing or prior home ownership can provide the equity stake needed to cover foreclosure purchase costs, provided you have a solid equity position available in your primary residence. Otherwise, some source of liquid cash to tap, along with low debt and outstanding credit, is essential.

Owning a home previously also teaches you about financing, tax shelter issues, property maintenance, and home improvements. You'll also need assistance from a real estate agent, attorney, investor, or another professional familiar with local real estate law, specifically as applied to your market's foreclosure system.

ALL BUYERS BEWARE OF FORECLOSED HOMES.
If all of these seem in order, buying a foreclosed home can still present challenges. Here are a few to be aware of:

If someone has been unable to pay their mortgage for several months, chances are they also haven't been able to afford upkeep. The home will likely sell "as is" and may need costly maintenance and repairs.

The home may have been vacant for some time; it is not unusual to find missing appliances, toilets, sinks and even electrical wiring and plumbing.

It may be necessary to evict lingering residents who have lost their home.

The title could be tagged with judgements for an unpaid second mortgage or home improvement loan, and could include late fees and other fines.

A foreclosed home purchased through a winning bid at auction must be paid for with cash or a cashier's check. All sales are final for the total amount of the bid.

You typically cannot inspect an auctioned property (unless you saw it pre-foreclosure) and will not have time to do comparables or a title search.

If you buy your home at a discounted rate, how do you know that the next sale will be below your discounted sales price and your negative collect info all before you move into your repo discounted home?