Why Buying a Foreclosure is a Smart Move

Nov 15, 2017 - 2 Min read
Manuel Martinez
Real Estate Expert

Foreclosures get a bad rap, as if there’s something foreboding waiting to descend on the next homeowner. But that’s not the case; they’re just the product of a difficult financial situation. Some foreclosed homes are modern, attractive, and move-in ready, while others require a bit of TLC before they’re ready to be a home. There are foreclosures available at every level of quality and price. If you’re on the market for a new home, here’s why you should consider buying a foreclosure.

Low purchase price.

Foreclosed homes carry significantly lower price tags, at a 34.9% discount from median home prices, which translates into a savings of about $77,500. In some areas, the discounts are even more extreme and the opportunities more varied. For example, housing near Wayne State University in Detroit recently made up several places on This Old House‘s list of the nation’s cheapest foreclosures, with homes going for as little as $2,900.

Repairs and closing costs can be included.

Dealing with a foreclosure means dealing with a highly motivated seller. If you’re concerned about a few quirks about the home, such as plumbing that needs work, you can usually negotiate that into the deal. (Don’t hope for a full remodel, but you can check some smaller to-dos off the list.) The same goes for closing costs, which are usually the buyer’s burden. If they’re looking to unload the home quickly, and you make a solid offer, you can try to get the seller to take care of those final closing costs.

Rehabilitation loan options.

Securing a mortgage for a home that needs significant repairs can be tricky. But, buying a fixer-upper means you likely qualify for a FHA 203(k) Rehabilitation Loan, which is a long-term loan that covers both the home purchase and any necessary renovations, as long as the residence requires at least $5,000 in improvements.

Make money on the sale.

Many home-rehabbers buy foreclosed or fixer-upper houses, transform them into beautiful homes, and then reap the benefits of the extremely low purchase price when it’s time to sell. Remember our first point: Foreclosed homes sell for about $77,500 less than the median home price. When your investment starts out that low, it puts you, the new owner, in a great position to sell this home for a profit — unless you fall in love and never want to leave.

Foreclosures are a fantastic investment opportunity for buyers willing to do the research. Some foreclosures carry their liens with them, but the discounted sale prices and rehabilitation loans offer buyers the chance to buy and customize their home on a dime.

Unlock your Real Estate investment opportunities.

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