Foreclosure: A Costly Bargain?

The Hidden Costs (and Occasional Headache) of Buying a Foreclosed Home

Any other TJMaxx-inistas or Maxx-inistos (ha!) out there who love hunting for a great deal? I know I'm one! When it comes to bargain-hunting for houses, foreclosures can be great deals because they are homes typically priced below market value for a quick sale. The bank is simply trying to collect the money they've lost on the house and get out from underneath of it. But there are a few things about them that buyers should remember when it comes to bargain house-hunting at their own expense:

1.) It can be hard to get a loan on a foreclosure. The reason the house is in foreclosure to begin with is because someone didn't pay their mortgage. If you're not paying cash, be prepared for an extensive pre-qualification process and an even longer loan processing time. There also can be a lot of "government red tape" that prevents you from moving forward in a timely manner. But if you're not in a hurry, hunt away!

2.) AGAIN, there is a LOT of red tape. If you thrive on clear-cut answers to things and non-convoluted processes, buying a foreclosure may not be your forte. The U.S. Department of Housing and Urban Development (HUD) is a very large and complicated entity, and if a foreclosed home is in their possession, you can bet it's going to be a pretty sticky obstacle course just getting from point A to point B. Be sure to hire a Realtor who specializes in helping buyers purchase foreclosures as they can help ensure your bids, contracts and loan / loan extension paperwork is submitted in the proper forms and within the proper deadlines without risk of contract cancellation. Believe me when I tell you that these dignitaries have no sympathy for "my dog ate my homework!"

3.) There is oftentimes a lot of repairs to be done on the home. It's a hard pill to swallow, but oftentimes the occupants of these foreclosed homes were issued eviction notices from their local Sheriff's offices. That is a very disheartening image to picture, especially not knowing the extent of their hardship or familial situation, but unfortunately it's the reality. Don't expect them to be sympathetic and leave the place in great condition when they leave. In essence, their home is being "taken away from them," so you can imagine how some might leave it for the overtakers. Moreover, if bills were difficult to keep up with, common home maintenance repairs probably were too.

4.) A mortgage means the house must appraise. If you're getting an FHA 203K or some other form of rehabilitation mortgage on a foreclosure, you can expect the home to need to appraise for higher than it currently is priced (in most circumstances). It will need to appraise for the cost plus the value of repairs, and the cost of those repairs cannot exceed the value. Moreover, in order to pass the appraisal, the home might require some repairs to be done before the bank will lend any money on it.

5.) Be sure to pay for a thorough title examination and insurance. Foreclosures come with a lot of legal paperwork and sometimes false claims of ownership. Be sure to hire a title attorney to conduct a thorough title examination and obtain title insurance, if not provided by your mortgage lender. This will save you money in the long run!

In conclusion, foreclosures can indeed be a great bargain, but be sure to do your research to know what exactly it is you're getting, and how much it's really worth. By the time you do the rehab, will it still be a deal? Is the headache during the process worth the extra money you're saving? Weigh your options, and as always, hire a Realtor!

For a full list of KY foreclosures, visit HUDHomestore.com.