(Closed) Buying a Foreclosure? Good, Bad, Ugly?

posted 8 years ago in Home
Post # 3
Member
2867 posts
Sugar bee

@Delovely:  Unless you’re planning on staying there long term, I’d suggest renting.  You need to go through a more extensive process to a buy a home and qualify for a mortgage.  My dad bought a foreclosed house that was not ripped to shreds (we saw so many that people vandalized in anger on the way out).  He had to agree not to sell the house for so many years, I think.  They (banks and the gov’t) don’t like the turnover rate of foreclosed homes.

Post # 5
Member
2083 posts
Buzzing bee
  • Wedding: May 2010

We bought a foreclosed home and are SO incredibly happy that we did! Like you, we realized that we could take advantage of the market and actually own our home for less than what we were renting. We did put down a 20% downpayment and had to pay closing costs as well though so we did have to spend a lot in the beginning to do it, but it has definitely been worth it. Not all foreclosed homes are crappy – we saw plenty that were a little bit scary and more work than we could handle. When we found our home it needed improvement, but not improvements that we couldn’t handle.

We definitely didn’t have to agree to live in the house for a certain period of time either. Nothing like that at all. And it wasn’t a horrible experience getting approved for a mortgage at all. We just went in to the bank, sat down with someone and they told us how much we could actually be preapproved for and that was the price range we looked in.

I say go for it if you can afford the downpayment, closing costs, inspection fee and be willing to spend some of your money on things you wouldn’t have if renting (for example, one of the first things we did was replace our countertop/sink/lights/faucets, etc). In the end if you make the improvements and sell it later hopefully you will be able to make some money off of it 🙂

Post # 6
Member
955 posts
Busy bee
  • Wedding: April 2011

We bought a foreclosure as well. There are a lot of torn up foreclosure homes out there but you can find ones that are just fine, we did. We did not have to agree to living in it for any amount of time, other than the 3 years for the first time home buyer credit so we don’t have to repay it. We LOVE owning our own home. It made a lot more sense to us to buy rather than throw more money out the window renting ( our rental even went into foreclosure while we were living in it). We pay a few hundred dollars less a month on the mortgage, tax and insurance than we did renting a smaller house.

Post # 7
Member
2829 posts
Sugar bee
  • Wedding: June 2011

We bought a foreclosed home last year.

Inspection is a must.

The amount we bought was the amount owing on the previous mortgage –luckily it had not been re-financed nor were there any liens on the property. We had to pay closing costs as well.

We opted for a 22% down payment to further minimize our mortgage and opt out of CMHC fees (Canadian thing, not sure if there is a State side equivalent).

There is a lot of work to be done to our house, but there was also a lot of potential. We gauged the pros & cons for our situation; i.e.: we were already staying here for at least 5 years, rent was costing more than in the city(or 5x our mortgage payment), comparable real-estate in the area was three to four times more expensive etc etc.
ETA: Our house was not torn up or damaged purposefully by the previous owners, just a lot of overall neglect and fixing up to be done on an old house.

I really wish I could be more insightful, but every situation is different.

Post # 8
Member
3587 posts
Sugar bee

My house is a foreclosure, but it was built in 2007 and went into foreclosure in 2009. HUD bought it then sold it to another company who renovated it as much as it could be since it wasn’t messed up. I also had an inspection which went great.

Mine was different from the typical foreclosure, but I say try it. You never know and they all aren’t trashed to high heaven.LOL

Post # 10
Member
42 posts
Newbee
  • Wedding: September 2011

I bought a foreclosure last year and there is a minimum amount of time i have to stay in the house because I qualified for the first time homebuyer credit (that unfortunately I don’t believe is still available) but due to that credit I have to stay in the house for 3 years otherwise I have to pay back the credit.  Otherwise 2 years is the minimum to avoid paying capital gains taxes.

Also, I only had to come up with 9% for the down payment.  Not sure if that’s the same where you live.

-I would suggest starting with a lender – ask for a recomendation from friends/family/neighbours/coworkers or even your realtor.  Mine was a referral from my realtor and he was great, available at all hours, quick to answer questions and explain things to me.  Awesome.

-I would *strongly* suggest a fixed rate loan.  If it’s fixed it will stay at that rate no matter WHAT for the duration of your loan (unless you re-finance of course).  Part of the reason there were so many foreclosures is people got adjustable rate mortgages and had a 3.75% mortgage for the first 2 years and then it doubled on them.  If you go the fixed route it may be slightly higher (like 5% instead of 4.75%) than the adjustable ones.  But ultimately, it’s the easiest way to ensure your payment stays exactly the same.

-Ask to have your insurance and taxes included in an escrow account.  My property taxes are paid by my bank when they are due twice a year, I pay a pro-rated amount each month and it gets set aside and then when my bill comes for my $4000 tax bill… it’s already taken care of!  Banks and insurance companies and counties are all used to this, so it won’t be an odd request or require extra work.

Overall though, owning a home is hard work, there’s always little stuff going wrong and you have to fix it.  There’s no landlord.  Luckily I’m pretty handy (FH…. not so much, lol) so I take care of things myself.  I think as long as you trust your realtor and your inspector and listen to your gut!!  It’s a great experience and will definitely pay off in the long run!

Post # 11
Member
3942 posts
Honey bee

We didnt buy a forclosure but I can tell you that we spends $100’s each month on just “easy” repairs that we are doing ourself-paint, replacing light fixtures, landscaping, etc. We are doing lots of cosmetic upgrades but even though its minor stuff, it does add up over time. Also, don’t forget to factor in costs of things you might need to buy right up front-appliances, lawn care items, etc. We rented for years and didnt own a lawn mower, rakes, things like that. 

Also, dont forget homeowners insurance and property taxes. 

We LOVE owning a home and as long as you can afford it I say go for it.  

Post # 12
Member
3762 posts
Honey bee
  • Wedding: May 2010

@Delovely: I would say 20% is a good amount for a down payment but not necessary.  We put 10% down and saved the rest because we were planning a wedding and wanted to put in new floors etc. 

The amount set aside for repairs is a good thing too.  We put away almost $200 a month in repairs for our house (usually we spend about $100 and save $100). 

Both the normal inspection and the WDO (wood destroying organisms) inspection are crucial on a foreclosure.  Most foreclosures are sold “as is” meaning the bank isn’t going to come make any fixes to the home. 

 

 

Post # 13
Member
30 posts
Newbee
  • Wedding: April 2011

My Fiance and I bought a house last year through an estate sale.  Not quite a foreclosure but we did see a lot of them out there.  We did get a super good deal on our house, but we went into it knowing we would have to do a lot of work.  When I say good deal, I mean great deal.  Our repairs + mortgage + insurance + taxes is still less that what we would paying to rent anywhere in our area.  Inspections are key!  Make sure you find someone who is reputable.  There are a lot of schuysters out there who will take your money and not give you a good inspection!

There are a lot of good deals out there right now for first time home buyers!  There are different loans that can lower your down payment or interest rate.  Also, we qualified for the the first time home buyer’s credit, which will give you back 10% of the cost of your house up to $8000, you just have to stay in the home for 3 years.  I think this is still available.   I would research the different options available to you. 

 

Post # 14
Member
81 posts
Worker bee
  • Wedding: June 2011

We bought a foreclosed house a year ago and didn’t have a single problem.  I agree with the previous posters that inspection is a must, but I would say that with any home purchase.  As long as you can put 20% down, I think it’s a good investment.  Interest rates are pretty low right now, and a lot of my coworkers have refinanced their homes and gotten a lower rate.  Good luck househunting!

Post # 15
Member
1440 posts
Bumble bee
  • Wedding: September 2010

@missmouse29: Where do you live? In Ontario (or the very least Toronto and surrounding areas) the banks are obligated to sell the home for fair market value, not just what is owed to them. I didn’t think there were any areas in Canada that operated like they do in the States on foreclosures. It’d certaintly be nice to buy a foreclosed home for a fraction of market cost … but that reality doesn’t exist in our market.

Post # 16
Member
6009 posts
Bee Keeper
  • Wedding: May 2009

We bought a foreclosure; if we hadn’t, we wouldn’t have been able to buy a home in our town for at least 3 more years.  We live in an expensive area.  I think everyone had great advice, but I’ll add that with an FHA loan, you only put down 3%.  In my opinion, it makes more sense to put less down now then wait to save up 20% and lose out on a great opportunity.  Of course, if you already have the 20% saved up, that’s the way to go! 

Also, I think buying a foreclosure is a good investment, even if you’re not planning on staying there indefinitely.  We bought a condo in college, lived there for 1.5 years, and now use that property as a rental.  If you are interested in an investment property, foreclosures are a great option because you’re more likely to rent it out for enough to cover the mortgage.

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