If you are looking for a new home and have limited funds, a foreclosed property might be a bargain. Foreclosed homes are often sold below market price. If you find one in good condition, you may be able to get a lot more house than you would otherwise be able to afford, but you need to consider all potential expenses.
Don’t Forget About Closing Costs
Closing costs are fees to process a mortgage, perform a title search and satisfy other requirements to transfer ownership of a property. They typically total about 2 to 5 percent of the sale price, depending on the location and the companies involved in each aspect of the process, and are usually paid by the buyer.
When purchasing a house, people sometimes don’t think about closing costs or are surprised at how high the total figure turns out to be. Closing costs will still be required if you buy a house in foreclosure, but you might be able to lower or avoid them, depending on the circumstances.
What’s the Condition of the Property?
A vacant property is subject to neglect, vandalism and theft. Homeowners who are facing foreclosure have even been known to vandalize their own homes out of anger before being evicted.
A foreclosed property is sold as-is. A bank may pay for repairs to make a home inhabitable, but other problems are left for the new owner to handle. A bank selling a foreclosed property may not be aware of all problems and may not disclose problems even if it knows about them.
The Seller May Be Willing to Negotiate on Closing Costs
If a significant amount of time has passed since the lender foreclosed on the property, the company is probably eager to get the house off its hands. Every day that a property sits vacant, its condition can deteriorate, which can make it harder to sell. If the lender has struggled to find a buyer, it might be willing to pay some or all of the closing costs as an incentive for you to buy the property.
If the seller won’t budge on closing costs, your mortgage lender might be willing to roll them into the total amount of your loan. That means you’d have a higher monthly payment and possibly also a higher interest rate. If you are short on cash now, however, you might be willing to accept the greater long-term costs to buy the house you want, especially if you’re getting it below market rate.
Get Professional Advice
Buying a house in foreclosure may be a smart move, depending on the amount of work the house needs and the cost. If you decide to purchase a house that has been on the market for a while, you may be able to negotiate an agreement with the seller to reduce or eliminate your closing costs. Discuss the specifics with your real estate agent, and ask for advice on how to proceed.
When are banks going to be able to sell foreclosed homes due to the COVID outbreak?