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Advantages & Disadvantages of Buying a Foreclosure

By Mike in Home Buying Tips with 0 Comments

As you browse for homes to buy in the San Diego area, you’re bound to stumble upon what seems like an amazing deal: condos or lofts in downtown San Diego priced below comparables and within your budget. While you may assume there’s something wrong with the home to explain the discount, the answer may be more simple: a foreclosure. Buying a foreclosure can be a great strategy for getting a home at a discount, but make sure you know the benefits and drawbacks before you decide if this is the right path for you.

Pro: Discount on the Price

Foreclosures are usually priced below market value, although how far below market value can depend on factors such as the local real estate market and the lender. In general, you will likely pay below market price for the home, which gives you instant equity.

Pro: The Home Is Vacant

Because the property will already be vacant, you don’t need to wait for the previous owner to move out once your offer is approved. Escrow and closing can proceed fairly quickly after that point. If you are making a cash offer, you can move into your new home even faster.

Con: Getting a Loan Can Be Complicated

With some types of loans, such as an FHA loan, the home must be in habitable condition before a mortgage can be issued. Issues like missing appliances or even holes in the drywall can prevent you from getting a loan. If you are using a conventional mortgage, you will probably need to tell your lender you want to buy a foreclosure so you can be approved for the specific property before even making an offer on the home.

Con: The Process Can Take a Long Time

Buying any foreclosure can be a time-consuming process because it is not the seller who is accepting or refusing your offer: it’s a bank. Some banks will accept an offer in as few as two weeks if you are making a cash offer with no contingencies, but it’s more likely for the lender to take up to several months. There is usually more paperwork associated with a foreclosure as well.

The process can be even more complicated when it comes to downtown San Diego condos. It’s not uncommon for the previous owner to have fallen behind on HOA fees, and sometimes an HOA will hold up a sale to collect the past-due amount from the previous owner, the bank, or the buyer. Some buyers have been known to pay the previous owner’s HOA fees to close on the property, even though they aren’t responsible for this expense.

Con: A Foreclosure Doesn’t Require Disclosures

Sellers are required to disclose known problems with the home when they sell, but a foreclosure will not come with these disclosures because the bank is the seller and has not lived in the home. It’s always important to have a home inspection done before buying a home, but it’s especially important with a foreclosure because you won’t be informed about any defects with the property.

Whether you want a loft in Gaslamp Quarter or a condo in Marina San Diego, real estate is a hot commodity, and foreclosures in the area are likely to be purchased quickly after being placed on the market. However, if you work with a trusted agent who knows what to look for and when to look for it, you’ll have a far better chance of finding your dream home. Call 92101 Urban Living today at 619-649-0368 to learn more. ')}