Foreclosure has made several properties open for the purchase and in today’s world, they are available in every real estate market and are equally beneficial to the homeowners and investors. Foreclosed home are those homes or property that has been mortgaged or kept as security with a lender who acquires the right to sell the property on the default in payment by the borrower or the terms of the mortgage deed according to The Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002. This practice is called foreclosure and can be done without the intervention of the court.
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Is it a good idea to buy a foreclosed home?
Purchasing a foreclosed home is a good option as there are quite a lot of advantages attached to it.
- One of the main advantages of buying a foreclosed home is that the price at which they are sold is much lesser than its actual value. The lenders are in a rush to sell off the property and hence making the price much lesser than the actual worth of the property.
- Another related benefit is that the return on investments in cases of buying a foreclosed home is much higher as they are purchased at a lower value than the actual worth and the sale can be made on a high amount. If the property is appreciated or renovated then the price of the property can increase further thus complementing the fact that purchasing a foreclosed home is a good idea.
- A basic inspection can be carried on in the property before engaging in the purchasing process. A clear appraisal of the property and home can be made before purchasing which leaves you with a clear picture of what you are getting into. This also puts the buyer in a much better bargaining or negotiating position when compared to other properties.
- One of the most important reasons why foreclosure properties are a good option is that the financing option is better as the down payments and monthly payments are generally low. It is also recommended because there are chances of a dispute over the title over the property which can be negated in this type of property as the lender clears them before making the property open for the auction.
- Property varies from one other based on factors such as use, money, and time. Thus it is very important that a proper analysis is made on the worth of the property before entering into a purchase deed. The buyer should also consider the property’s age, the quality of construction, unit quality, layout, etc. However such property is recommended due to the positive impact that it may have on the buyer.
What is the downside of buying a foreclosure?
- The disadvantages or downside of buying a foreclosure may arise in cases wherein the property is damaged or has a lien attached to it.
- In cases of damage, there are chances of the cost being attached to the repair of the property. In such cases, the renovation process may also cause certain delays that may not be preferred by those wanting to use the property within a limited period of time.
- Another disadvantage attached to the purchase of foreclosure homes is that there are chances of squatters that need to be evicted legally. Since most of the houses and property are left uninhabited for a long time before they are open for foreclosure, there are chances of people that stay unlawfully on the property. However, The Limitation Act provides squatters with legal rights over the property if it has been acquired for more than 12 years in case of private property and 30 in case of government property.
- Contingencies in relation to the electricity and water may also occur. There are also chances of broken pipelines and other damages on the property due to the negligence of the previous owner. There can also be pending charges attached to the property that was incurred by the previous owner.
Can you get a loan to buy a foreclosed home?
The direct answer to the question is yes even though cash is the most preferred medium of exchange in the foreclosed auction. The banks provide various mortgage loans to facilitate those without enough resources. Before granting loans there are various factors that are considered such as the property and its condition. The loan is the latter sanctioned on the basis of that amount.
A conventional mortgage loan is provided by the bank to the buyer with the amount required to facilitate the purchase. You may get in-principle loan approval. A home loan is an option provided by the banks to purchase distressed residential properties. However, these loans are provided after considering the borrower’s credit history and repayment capacity. The loan is also sanctioned on the grounds that the buyer will fulfill registration charges, stamp duty charges, and other legally necessary charges. Further submission of valid documents with the bank is also necessary for the sanction of loan.
What credit score do you need to buy a foreclosed home?
The CIBIL score of 650-749 is considered as a good score to grant you a home loan. 650 is considered as a minimum requirement by banks and other financial institutions to grant home loans. The score of 550 and 649 are considered average and loans can be granted after some required working on. 300-549 is considered a bad score. Apart from all this the banks also consider your other financial details.
What are the pros and cons of buying a foreclosed home?
The various pros of purchasing a foreclosed home are:
- A foreclosed home is always available for a price that is discounted or low.
- It helps you to acquire property or home in a neighborhood which was probably out of your reach because of the price.
- In an ordinary transaction, the closing cost is borne by the buyer which can be shifted to the seller in cases of a foreclosed home.
- The return on investing in a foreclosed home is higher as the purchasing cost is considerably lower than the selling price.
- If a loan is acquired for purchasing from a bank, then a basic inspection and estimation of the charges of repair can be made. Thus giving you a clear picture of the cost that you may incur.
The various cons associated with the same includes:
- In cases of foreclosed auctions, the price needs to be paid fully in cash. In some cases, down payment schemes are available but the amount needs to be paid shortly.
- You have to take over the home or property the way it is. Normally these properties or homes are poorly maintained which is one of the major problems faced in relation to foreclosed home due to which there will be damages that need to be addressed to make the house usable.
- The closing of the transaction may also take some time.
How to find a foreclosed home?
A foreclosed home can be acquired through various forums. Some of the ways to know about the various listing of the foreclosed home are listed below:
Real Estate Agent:
In order to find a foreclosed home, the easiest method is to approach a real estate agent that is specialized in a foreclosed home. It is also sufficient if the real estate agents have sufficient experience in the foreclosure properties. They will be able to guide you through the various listings and databases to which buyers may not have direct access to. Some of the government agencies want the offer on the foreclosure property to be made by the real estate agents as well.
Checking the local newspaper to find legal notices relating to the auction of the listed property, can also help in finding foreclosure property. After analyzing and finding the legitimate companies, you may check through the websites of the companies to know the listing of the property as well as the upcoming auction.
Some banks, generally big banks, list their inventories of the foreclosed home on their websites. These sites can be searched according to the state, city, including prices, photos, descriptions, and agent contact information for each listing. Some lenders also engage asset management companies that are responsible to carry out the listing and selling of the foreclosed home. Thus checking through their website can also help in finding a foreclosed home.
Another relevant method may include checking out the place of your choice for ‘foreclosure’ or ‘bank repo’ boards, physically. The auction houses are also another method of finding the foreclosed home. However, it is not recommended as the thrill of bidding can escalate the price of the property.
The most recommended method is generally through a well experienced real estate agent.
Should the buyer exercise Due Diligence while purchasing foreclosure property?
The direct answer to this question is yes due diligence needs to be exercised. Due diligence needs to be exercised in the following manner:
- Buyers should exercise due diligence and conduct a title review and prepare a title report showing various transactions in the foreclosed home, before the purchase. The buyer should check for other liens on the property such as tax lien, encumbrance, etc. on the property.
- The inspection of an occupied foreclosed home may not be possible. However if possible, inspection needs to be carried out in a manner by a professional to ensure that there is no structural damages, water damages, and other major problems. It is important to ensure that there are no functional problems on the property.
- Consider the neighborhood and the sales activities in that area. This will help you to evaluate the rate on the property.
- Look for the various facilities available in that area. These facilities include access to school, access to transportation facilities, access to roads, and the various development programs in that area. All these factors appreciate the value of the property and will be able to yield you better results. (read more Need for due diligence in Real Estate)
After analyzing the various pros and cons of a foreclosed home, it can be recommended that the purchase of a foreclosed home can be beneficial as they are available at a lower price and the return on investment is high. The various cons attached such as the possibility of damage to the property can be resolved by conducting an inspection and appraising the property. However, property varies from one another and the needs, as well as the resources available, may also vary. Therefore a proper analysis of the property with the help of a good real estate agent is recommended.