10 Things to Consider Before Buying a Foreclosed Home

You can find foreclosed homes for sale on listing websites or through bank offices. One of the main advantages of buying them is their low price. However, there are some downsides, such as the property’s condition or the slower process. Before purchasing a foreclosed home, keep these things in mind.

1. Get a Home Inspection

One of the main concerns of a foreclosed property is its condition. Suppose a homeowner is behind on their rent payments. They may also neglect certain maintenance tasks. A home inspection allows you to understand the repairs needed before buying the home. Then you can make an informed decision on whether the house is worth the price.

The inspector will look at things like your home’s foundation and structural components. You are responsible for the cost, which is around $277 to $399, but it’s worth the peace of mind and reduced stress down the line.

2. Learn More About the House’s History

Usually, when a traditional property is sold, the buyer receives a seller disclosure. The document gives information about any material defects or previous repairs. Since the lender hasn’t seen the property, they may not have to provide one. Therefore, you risk being stuck with hidden maintenance costs.

In addition, you don’t have a bigger picture of how the house has changed. This is why the homeowner’s inspection is critical. Also, you can try to learn more about the property’s previous condition through the neighbors.

3. Turn the Utilities Back On

Often, the house may be unoccupied for a while. To prevent freezing pipes, the water may be turned off and the water lines drained. Before getting an inspection, make sure the lines are pressure-checked and energized. In addition, you will need a licensed electrician to perform a safety check on your systems. Ask your real estate agent for referrals to make the process go smoother.

4. Inspect the Plumbing

One of the most common maintenance issues with foreclosed homes is leaky pipes. Homeowners who are tight on money may try to perform the plumbing repairs themselves. However, you then may need to replace wet flooring or drywall. If you don’t remove the moisture, mold will start to grow.

Removing mold can be an expensive and time-consuming process. It can cost around $2,000 to $6,000 to remove mold from ducts, crawl spaces, and attics. Make sure to pay close attention to the plumbing report from the home inspection.

5. Check the Heating and Electrical Systems

Another issue with foreclosed homes is the person no longer lives there. So, dirt, debris, and even small animals can accumulate in the ductwork. Also, if it’s a humid area, the heat exchangers could corrode and need to be replaced. Keep in mind some companies won’t light the gas systems if they’re dirty due to safety reasons.

Therefore, you may have to pay to update your heating system and have it cleaned. Gas furnaces can cost between $1,360 to $12,500 to replace. You will also need to pay to remove the old system and install a new one.

6. Pay Attention to Signs of Neglected Maintenance

Once a homeowner stops taking care of their home, maintenance issues start cropping up. For example, the gutters can fill with leaves or the shower caulk could wear down. Common problems also include non-working appliances or a broken HVAC system. Exterior damage, such as a cracked foundation or roof leaks, can be an issue as well.

These problems may cause a concern down the line, such as mold growth. Before buying a home, make sure you are aware of the possible repair expenses and have some money saved up.

7. Resolve Any Lien Issues

A lien is an asset that is used as collateral to satisfy a debt. For example, if a person fails to fulfill a payment obligation, the creditor can take their property. A foreclosed property could face liens from unpaid contractors or the homeowners association.

Before moving forward with the sale, make sure these liens are cleared. The lien may be paid off by the property sale proceeds. You can also pay it off yourself or file a title lawsuit. The lawsuit helps to clarify the ownership of the property.

8. Remember It Can Take Longer to Close

Besides maintenance issues, the time delay is another thing to consider. It can take around two to three months to close. One of the reasons is that you’re working with a bank, so you may have to send documents to their headquarters.

Plus, bank owners also have other work to tend to, which could further delay the process. Therefore, you want to have another place to live in case the sale takes longer than expected.

9. Understand the Legal Rights of the Previous Owner

When it comes to the foreclosed house, the previous owner has some legal rights. Make sure you carefully understand these before making a purchase. For example, the homeowner has a right to repurchase the house.

However, they must first pay off the loan in total. If they can cover the expenses, the sale could fall through. Keeping this in mind can prevent you from scrambling at the last minute to find a new home. You may even want to hire an attorney to fully explain any confusing legal jargon.

10. Know the Main Ways to Purchase the Home

There are a few ways you can buy a foreclosed home. Buying through a lender’s auction is common. Keep in mind you will be bidding against professional real estate investors. To outbid them, have your finances in order. Make sure you’re pre-approved for a mortgage ahead of time.

In addition, come up with a strategy for how much to spend. Calculate the market value minus repair costs. Also, during the process, keep your emotions in check and don’t go over budget. Another thing to keep in mind is you have to pay in cash and the house is bought sight unseen.

The other option for buying a foreclosed home is through a bank. You can check out listing websites such as Equator.com or HomePath.com to find properties. These bank-owned houses are then listed and sold by real estate agents. Like traditional properties, you make an offer, then the broker will take it back to the bank.

Tips for Buying a Foreclosed Home

Sometimes homeowners can’t pay their mortgage and the bank takes their house. For potential buyers, this can lead to more affordable properties on the market. Although, these homes often have hidden maintenance issues. Before making any decisions, review these tips to determine whether a foreclosed home is right for you.