Advantages and Disadvantages of Buying a Foreclosure

Buying a foreclosed house can mean you get a great deal, but there are some things to watch out for, too.

Many buyers associate buying a foreclosure with getting a steal of a deal. This can be true, but there are also potential pitfalls. The pros and cons of buying a home involved in foreclosure vary with the phase of foreclosure the property is in when purchased. Use this handy guide to figure out what sort of property is best for you! Also see The Stages and Phases of the Foreclosure Process.

Missed Payments/Motivated Seller

Advantages:

  • Seller will be motivated to achieve a fast sale, may create opportunity for below market purchase price.
  • Seller may be more likely to do repairs.
  • Seller might be amenable to providing major closing cost credits and other concessions.
  • Buyer can use regular mortgage financing.
  • Buyer can obtain desired inspections within standard due diligence/contingency period.
  • Seller must legally provide complete history of property’s condition, problems, repairs, etc.

Disadvantages:

  • Seller may not be able to negotiate price below outstanding balance of seller’s mortgage(s).
  • Sellers still have to move out.

Pre-Foreclosure/Notice of Default (NOD) or Lis Pendens Filed by Lender/Short Sale

Advantages:

  • Seller will be motivated for fast sale, increasing buyer’s bargaining power.
  • Buyer can do all standard inspections, including researching title during due diligence/contingency period.

Disadvantages:

  • Unless purchase price will pay mortgage(s) and closing costs in full, lender’s approval of price and terms of sale will be required (i.e. short sale).
  • Lender may not approve price, seller concessions or closing cost credits.
  • Short sale may take 45-90 days to close.
  • Sellers still have to move out.

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