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The Pros and Cons of Buying a Foreclosure
Dated: January 18 2024
The Pros and Cons of Buying a Foreclosure
By Gina Thompson
As you go through listing after listing searching for a new house to call home, have you ever considered looking at foreclosed homes? In the hustle and bustle of the post-pandemic housing market, foreclosed homes are getting overlooked, and some are going for as low as $5,000 in Alabama and Georgia.
But what is a foreclosed home? A bank or lender forecloses a home, taking over ownership after the owner defaulted on their mortgage. A foreclosure is a legal process that allows lenders to sell property to satisfy debts.
When considering if a foreclosed home is right for you, there are several important factors to consider, like the price of the house and the amount of money you’ll need for renovations. Consider the following pros and cons:
Pros of Buying a Foreclosure
Buying a foreclosure has several potential advantages, but it is essential to approach a potential purchase with careful consideration.
Potential buyers and investors have advantages when purchasing foreclosures, making them an enticing option in the real estate market. That’s because foreclosed homes usually go for significantly less than neighboring homes. This is what we call an investment opportunity in the industry.
Foreclosed homes also attract investors looking to flip for potential long-term gains. Low starting bids on foreclosures attract buyers, but first-time home buyers need to know lowball offers can be risky.
Most lenders just want to make money quickly, which means they are more open to negotiating the price of foreclosures. You can also qualify for specialty loans and financing options for foreclosed homes. For example, livable homes that meet the criteria qualify for a Federal Housing Administration loan, and the 203k FHA loan can cover rehabilitation costs.
If you’re having no luck finding your dream home, comb the foreclosure listings. Foreclosed properties come in all shapes and sizes, plus it’s not just homes that foreclose. You can find foreclosed land and buy acres at a low cost to build your dream house.
When purchasing a foreclosure, most buyers can expect a quicker acquisition compared to traditional real estate closures. In Alabama, lenders do not have to go through a judicial process, so they can take over the power of sale without taking the homeowner to court. Non-judicial foreclosure is a quick process, and you can expect to get into the property without any hassle, assuming the previous homeowner is out of the home.
Cons of Buying a Foreclosure
Although a foreclosure presents cost-saving opportunities, it also comes with potential drawbacks and challenges.
Issues and Repairs
Looks can be deceiving. Prepare yourself before walking into a foreclosed home. Even if everything seems fine, you still need an expert's opinion. Home inspections are important. They help you calculate the amount of renovations that need to go into a foreclosed home.
Some people even say you get what you paid for when it comes to foreclosures. If you purchase a $25,000 house, expect to throw in at least triple that amount for repairs, including painting inside and out. The starting cost for exterior house painting in 2024 is over $3,000, and new flooring can cost as much as $6,000.
Lenders auction foreclosed homes to recover their losses, especially if the previous owner defaulted on mortgage payments and property taxes. Even still, prepare to pay additional taxes on a foreclosed home.
Right of Redemption
In Alabama, homeowners have up to 12 months after the foreclosure to redeem their home. The right of redemption allows previous homeowners 12 months to come up with cash to purchase the home at the price the buyer paid at the foreclosure sale.
Alabama law also says that the redemption period for homestead properties is 180 days. The prospective buyer must receive a notice about the right to redeem 30 days before the foreclosure sale.
Potential Squatters and Trespassers
Expecting repairs is one thing, but you may find broken windows and graffiti walls depending on how long a foreclosed property has been empty. Trespassers and vandals can make a mess of a home and leave you to clean up.
Squatters are another cause for concern at foreclosed properties. Alabama State Code says squatters can possess a home if they’ve paid taxes over the last ten years. If you’re worried about the previous homeowners not moving out, understand that they could surrender their rights for refusing to leave. The homeowner can lose their right to redemption if they don’t vacate the property within ten days of receiving notice.
Like any home on the housing market, there are pros and cons. You just have to be diligent when it comes to foreclosures. These as-is purchases mean you could be in for an extensive renovation project, but the payoff will be worth it. For information regarding the home buying process or answers about foreclosed properties, contact Avast Realty, your digital resource for buying and selling homes across Alabama, Florida, and Georgia.
Gina Thompson is an experienced multimedia journalist, producer, and content writer born and raised in Texas. In her spare time, she loves catching a live band, dancing, and finding the next big taco spot. As a writer, she is passionate about making a positive impact on her community by elevating the voices and stories that need to be heard.
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