If youâ€™re thinking about buying a foreclosure, you have to remember that the process, risks, and benefits are somewhat different from buying a non-foreclosure.Â An article from CNNÂ explains Â some things you need to think about before buying, which includes the pros and cons of buying a foreclosure.
First, what type of foreclosure do you want? You can decide between a Pre-foreclosure, a Sheriffâ€™s Auction, or a Repossession (REO).
A foreclosureÂ occurs when the owner of a home is unable to meet the mortgage payments, and owes more on the home than what the home is actually worth.
A pre-foreclosureÂ is in the foreclosure process, but it hasnâ€™t been sent to auction. Buying a foreclosure at this stage may be slower and more expensive than buying a foreclosure at a later stage.
At a sheriff's auctionÂ foreclosures are at their lowest prices, but are also usually require a lot of updates and repairs, which can get expensive. If you are not in the market for a fixer-upper, it may be best to pass on these homes.
A repossession occursÂ if the home goes through a sheriff's auction unsuccessfully and the bank gains possession of the property. Banks will typically make repairs to correct healthy and safety violations in the home (if necessary). Also, this is the stage at which a homebuyer has the best opportunity to get a home inspection before buying.
When buying a foreclosure,
Research the Comparative Market Analysis (CMA) for the prices of comparable foreclosure homes in your area-this will give you a good idea of what you should be paying for the home
Be sure that you arenâ€™t caught up in the excitement of bidding, and overpay for the home
Get a home inspection before buying (if at all possible)
Take into account the cost of repairs for the home before you buy
Donâ€™t buy a foreclosure in a neighborhood/area that is full of other foreclosures if you are planning on moving in less than 5 years; you will probably end up losing money on the house when you try to sell
Get a pre-approved mortgage/ get pre-approved for a home loan
Talk to aÂ real estate agentÂ who specializes in foreclosures to find foreclosures near you, and how to buy one.