The number of homes falling into foreclosure is slowly dropping. But Louisville foreclosures still make up a large portion of the residences for sale in today’s housing market.
These homes, often offered at prices below market value, are a tempting target for home buyers. After all, savvy buyers can purchase foreclosed homes in top locations at bargain prices.
But these bargain prices often come with a potential pitfall. Foreclosed homes often arrive on the market in rough condition. Buyers might find that they’re spending their savings to repair leaky roofs, cracked foundations and outdated wiring.
The Foreclosure Boom
Foreclosures began booming shortly after the U.S. economy went into a tailspin. Homeowners who lost jobs could no longer afford their monthly mortgage payments. Many defaulted, and their banks or lenders foreclosed on their homes, taking possession of the properties and putting them back on the market, often at bargain prices.
According to RealtyTrac, an online foreclosure company, foreclosure filings were reported on 186,455 U.S. properties in October of 2012. That’s a jump of 3 percent from September of 2012 but still a dip of 19 percent from October one year earlier.
The benefit that foreclosed homes offer buyers is an obvious one: they generally come at lower prices because banks and lenders want to sell them as quickly as possible.
In October of 2012, for instance, the average sales price of a foreclosed home stood at $175,995. The national median price for all existing homes stood at $178,600 in the same month, according to the National Association of Realtors.
But buying a foreclosure home can lead to serious challenges. Often, these homes haven’t been maintained by their former owners, especially when these owners had been struggling financially for months. This deferred maintenance can be tough on a home. It’s why many foreclosures come with damaged floors, sagging roofs and cracking foundations.
You’ll have to fix these problems. And the costs of these repairs could eat the savings you enjoyed by buying a foreclosure. This is why it is so important to hire a home inspector — this will cost you about $450 depending on the size of the home you are buying — to inspect foreclosed properties. Inspectors will find the most costly problems. You can then, armed with this information, determine if a foreclosure really is a good purchase.
How to Buy Foreclosed Homes
You have two main choices when it comes to buying foreclosed homes. You can buy foreclosed properties at state-run auctions. These homes will come at low prices, but they also come with the most risk. That’s because you usually aren’t allowed to inspect a home that you buy at auction, and you must purchase the home with cash or a cashier’s check at the auction itself. You might end up with a home with serious damage when you buy at auction.
Your second option is to buy real-estate-owned (REO) homes. These are the foreclosed properties that banks or lenders sell directly on the open real estate market. This is a safer way to buy foreclosed homes because you can schedule a home inspection before purchasing. You can also run title insurance to make sure that no entities have liens on the home before you buy it.