Question: We are first time home buyers, and we are interested in purchasing a foreclosure. On television we see how people gain a lot of equity by purchasing a foreclosed property. Can you help us with this?
Answer: I can certainly help you purchase a foreclosed property, but will want to make sure you understand what is involved with this process.
Most foreclosed properties are in poor shape
Most foreclosed properties are left in poor shape – walls bashed in, plumbing stopped up, roof leaking. When you purchase a foreclosed property you are normally purchasing the home “as is” with no warranties or guarantee that anything works in the home. It is a big risk on your part. You must be prepared to make major repairs if after closing you find major problems. Most first time home buyers don’t have the cash reserves to do this.
Banks are reluctant to loan on foreclosures
Most banks won’t loan money on foreclosed properties unless you have excellent credit, put down a substantial amount of money, have a relationship with the bank, and a track record of repairing and selling distressed homes. So if you are a first time home buyer, you either must pay cash or have excellent credit and a strong relationship with a financial institution.
Wait until you are experienced at home ownership before tackling a foreclosure
A better bet for a first time home buyer is an affordable home in a good neighborhood. Or you can get a home that needs a little bit of elbow grease to fix up, yet still qualifies for financing. Sometimes you will find sellers who just want to get out of their home and don’t want to do the work to polish those up. To find these deals you need to be willing to look past the clutter and see the finished home, PLUS the ability to do the work and complete the upgrades. Typically these take 2-3 years of work to bring up to sellable condition. And you have to be willing to live in a construction zone while you fix up the house. A good way to build equity quick but it can be difficult on a relationship.
