Pros and Cons of Buying a Foreclosure Home

Foreclosure homes are an increasingly larger share of the real estate market inventory. Because so many of these homes are currently on the market, their value is forced lower, making them a great buy for a homeowner or an investor. What's more, buying a foreclosure generally means working with motivated sellers. Having so many properties on their balance sheets, banks and credit unions want to unload them quickly. And there are other advantages to buying foreclosures. But there can't be pros without cons, so downsides do exist.

Advantages of Buying a Foreclosure

Price is not the only advantage of buying a foreclosed property. Though sales average about 27 percent less than their owner-occupied competition, there are other pros in buying a foreclosure.

Motivated Sellers

Banks and financial institutions are weighed down with foreclosure properties. And that excess inventory isn't cheap to carry month after month. This gives buyers an advantage and some measure of leverage. Though the process might be drawn out over a longer period, it may be worth the wait.

Faster Amortization

While some buyers will be able to buy foreclosure properties for cash, far more will have to finance through a bank or credit union. This means sellers can generally put down a greater percentage of the sales price as the price tag drops. It also means being able to carry a smaller note, allowing new homeowners to pay off their mortgage at a faster rate or in small increments.

Disadvantages of Buying a Foreclosure

Discount real estate is great. But buying at below market value doesn't come without a few strings attached. In these purchases, hitches are commonplace. So potential buyers should be vigilant and protect themselves by becoming informed about a home before they buy it.

No Warranties

The term "as-is" goes hand-in-hand with a foreclosure purchase. There won't be a builder's warranty and new owners might face unexpected, unwelcome surprises. Even foreclosure homes which pass inspections with flying colors might have enough nickel-and-dime issues to eat up the discount.

Property Liens

Owners facing foreclosure may have many other financial battles going on simultaneously.  In desperation to hang onto a property, the previous owner might have not met their income or property tax obligations. Work done by contractors to offload the property to avoid foreclosure might have gone unpaid. That can translates into property liens.

While foreclosures make initially make financial sense, closer examination can reveal an entirely different picture.