Things to Consider Before Purchasing a Foreclosed Home
Buying a home is a big investment, making the home search process that much more important. Whether you are looking for a deal, interested in flipping, or merely found a foreclosed home that has sparked your interest, there are a few things to consider before committing.
What is a foreclosure? A foreclosure occurs when the homeowner has stopped making payments on their mortgage loan, causing the lender to take the house back and sell it, explains Ron Wivagg, national sales support manager of Prosperity Home Mortgage, LLC. This should not be confused with a short sale – when the homeowner sells their home at a lower price than what they owe because the mortgage is more than what the home is worth.
Banks don’t typically negotiate. Foreclosed homes are owned by banks, rather than an individual. “While you may think you’ll get a great deal by going after a foreclosure, that is not always the case,” said Kaye Wolf, a real estate agent in Long & Foster’s Virginia Beach, Virginia, office. “Trying to negotiate with a bank versus a person can be a lot more difficult.” While the bank may have a listing agent, communication can be a challenge and usually occurs merely via email.
A home inspection is a must. While most foreclosures are sold as is, a home inspection is critical. Although banks do not usually agree to cover the costs needed for the home repairs, it is better to know the condition of the home before purchasing it, suggests Dean Heim, a home inspector with US Inspect. A home inspection will provide insight into issues you may not be able to see from the surface, such as the foundation, roof, plumbing and electrical system. If you are planning to finance the home, a home inspection can help determine what your lender may require. For example, if there are safety and health issues, it may be more difficult to obtain a loan, explains Wivagg.
Budget properly for needed repairs. “Typically, foreclosures are distressed properties, and they often need some amount of work,” suggests Gary Ditto, an agent in Long & Foster’s Bethesda Gateway office in Bethesda, Maryland. It is important to be fully prepared, so you are not stuck with a home you can’t afford to repair. It is common for foreclosed homes to be stripped of appliances, copper pipes, light fixtures and more, suggests Wolf.
Flipping a foreclosure can be risky. It is important to have a clear understanding of the work required to get the home in good condition if you plan to resell for a higher price, recommends Ditto. You should also be knowledgeable about the local real estate market for that property and surrounding neighborhood. Flipping a home requires a large profit margin, adds Wolf.
Ask important questions. According to Heim, it is essential to find out specifics about the home before you commit to purchasing it. Consider asking the following questions. How long has the property been vacant? If vacant for an extended period, various issues from plumbing fixture leaks to mold, can arise. Is the title clear with no liens or unpaid utilities? It is important to know the property debt history. Are there any unpermitted improvements on the property? You can rely on county records to help determine if there have been additions to the property without the proper permits.
While there are a lot fewer foreclosures than in previous years, they are still present throughout neighborhoods across the United States. If you are considering buying a foreclosed home, your local real estate agent can help answer any questions you may have and walk you through the homebuying process.
Marnie Schaar & Associates Long & Foster Real Estate are licensed Virginia Real Estate Agents Email: Marnie@LNF.com · Cell: 703.509.3107 2100 Reston Pkwy Suite 102 · Reston, VA 20191
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