Should I Buy a Pre-Foreclosure?
Most people looking for a pre-foreclosure or foreclosure sale are looking for a deal. But if it’s such a great deal, why doesn’t everyone buy a pre-foreclosed property? Because there are major drawbacks to buying a pre-foreclosed or foreclosure property. These drawbacks are important, and you should consider if they make buying a pre-foreclosure right for you.
First, during the pre-foreclosure period, the original homeowner can still make their mortgage current. That means, should they come up with the money, homeowners can make a lump sum payment to the lender. If they do so, the home will come out of the pre-foreclosure process, and the homeowner will retain the property. This is great for the homeowner, but not so great for the buyer.
Second, the original homeowners are strapped for cash. That means that any costly repairs are not being done. Even minor repairs can fall to the wayside due to economic stress. Be sure to make an offer contingent upon a home inspection done by a professional. You should absolutely know the state of the house you are buying.
Keep in mind that any of those repairs will need to be done by you. And you’ll need to do many of them quickly. Be sure that you have enough money in savings to cover the cost of repairs. Knowing what repairs you can afford is just as important as knowing the amount of mortgage you can afford.
Third, you may have to have an unwelcome conversation with the original homeowner. That means approaching stressed-out homeowners in default of their mortgage. Don’t take this conversation lightly. Your great deal comes at another person’s expense, and you should never lose sight of that during negotiations. Be kind and patient with the homeowner. Focus on what your offer can do for them, and let them know you care about their well-being too.
Next, you may not get a chance to walk through the home before making an offer. All the more reason to get that home inspection. But home inspection aside, if you want to see the condition of the home, you may have to wait until after you make the offer. For some homebuyers, this is less than ideal.
Lastly, banks don’t always make it easy. Many take a long time to respond to offers and inquiries into properties. This is true for foreclosed and short-sale properties as well. If you’re looking to get a deal you may need to exercise patience.