So far in our 3-part series, we’ve covered the ins and outs of foreclosure from the owner’s point of view, including how short sales work, when an auction might occur, and what it all means for homeowners insurance.
On the flip side, if you’re house-hunting and considering entering a short sale, purchasing a home at auction, or buying a foreclosed home, there are a few basics to consider before you jump in headfirst.
The process for each can differ greatly (and also change from state to state), but here are 4 things you should be acquainted with before you sign on the dotted line.
4 tips for purchasing a foreclosure, short sale, or auctioned home
1. Inspect the house
This may seem like a no-brainer, but it’s incredibly important. Sometimes when you buy a house at auction, you’re expected to purchase it sight unseen. But this can be dangerous since it’s impossible to know the current condition of the house unless you have a chance to inspect it (who knows how old those pictures are).
Before you agree to anything, get familiar with the house, as well as the neighborhood. You may want to drive by the property at different times of day, just to get a feel for what the area is like. And in short sale and foreclosed situations, you can hire a private house inspector. While most banks require a house inspection, having your own inspection will provide peace of mind (especially if the house has been vacant for a while) and should only cost $300-$500.
2. Check if it’s being cared for
If the home is in foreclosure, find out how long it’s been that way and if the previous owner still lives there. If the house has been empty and without a caretaker, there could be unknown structural damage. And if you live in an area where cold weather and low temperatures are common, ask if the house was winterized. Pipes that are susceptible to freezing can burst and cause major water damage. Meanwhile, cracked or leaky pipes may lead to mold, which can pose a health risk as well as a financial burden.
It’s also important to note that in times of desperation, evicted homeowners may themselves cause serious damage to the homes’ plumbing or electrical systems, which can be expensive to repair (or replace).
3. Consider all costs
Obviously, it’s always good to determine a budget when house-hunting, but it’s absolutely essential when you’re shopping the foreclosure market. Foreclosures may require extensive repair work, so it’s important to build a repair fund into your overall budget. Don’t underestimate the price tag of what might seem like a few “cosmetic” repairs — home improvements tend to be more expensive than expected.
4. Be patient
If you’re currently renting and/or looking to get into your new digs quickly, you may not want to get into the short sale/foreclosure market. Short sales are rarely “short,” and the foreclosure process can be long and complicated. The bank wants to profit from the sale, which means it’s unlikely that an initial offer will be accepted. Additionally, you’re going to want as much time as possible to research. Rushing to hit a date could leave you with a home you’re unsatisfied with and unprepared to maintain.
Do your homework
Overall, the best piece of advice we can offer when facing or shopping for a foreclosure is to really investigate your options. Owning a home can be a great investment, but it’s critical to understand the ins and outs of homeownership before purchasing.
Of course, it’s also important to have a reliable, affordable homeowners insurance policy. And lucky for you, we’ve got you covered.
Understanding foreclosure: the 3 stages explained
Understanding foreclosure: what it means for your homeowners insurance
First-time homebuyer’s guide: coming up with a down payment
First-time homebuyer’s guide: shopping for mortgage rates