If you want to buy a home but don’t have a lot of money, you might be able to find a great deal on a property in foreclosure, or one that’s not in foreclosure but is in a neighborhood near other houses that are. Before you commit to a purchase, figure out if there are other issues that should make you think twice.
Low Price and Other Possible Costs
If there are several houses in foreclosure in a neighborhood, banks are eager to get them off their hands because they don’t want to keep paying for taxes and maintenance. This means that you could get a beautiful home at a fraction of the normal market price. Houses in foreclosure can also lower the value of nearby homes that are not in foreclosure, so any house in the neighborhood could be a bargain.
If the previous owners of a foreclosed house owe money, there could be a lien against it. Be sure to ask about that so you don’t wind up being held responsible for the past owner’s debts.
Potential Increase in Value
Some foreclosed properties are in great condition, while others are a mess. The previous owners might have been unable to afford routine maintenance, or they might have intentionally caused damage because they were upset about losing their home. If the house has been sitting vacant for a long time, it might have suffered from vandalism or a lack of maintenance.
If you buy a more affordable house in foreclosure and make repairs, you could significantly raise its value, but it could take time to see an increase. If there are several foreclosed homes in the neighborhood, they could keep property values down for years, even for houses that have not gone through foreclosure.
Consider the neighborhood’s crime rate, the quality of schools, the local economy and the way other residents care for their houses. These factors will affect everyone’s property values. If several houses are in foreclosure and the new owners fix them up and improve the neighborhood, that could revitalize the area and increase the value of all homes.
Be Prepared to Act Fast
Since houses in neighborhoods with foreclosures are cheap, many buyers are after them. That means you need to be ready to make an offer quickly. You may even find yourself in a bidding war. In order to prepare, work to raise your credit score, save for a down payment and get pre-approved for a mortgage.
Is This the Right House for You?
A neighborhood with several houses in foreclosure could be an excellent investment opportunity or a red flag. You could find the home of your dreams at a bargain price, or you could wind up stuck with a house that needs major repairs and is slow to increase in value. Think about the initial and long-term costs and how long you would like to live in the space before deciding to purchase a house in a high-foreclosure neighborhood.