When owners can no longer pay their mortgages, lenders will "take back" the home from them. These single-family homes can be a big bargain for sellers. Read on to find out more about what happens to bank-owned properties and what to watch out for.
Before the Foreclosure
It's possible to buy a home that is in distress but not yet foreclosed on. Sellers who cannot pay their mortgage can avoid having a foreclosure on their credit record if they can sell it before that happens. Unfortunately, some of these homes are already accruing a lot of unpaid payments, penalties, and more. In addition, sellers that are unable to pay their mortgage may also be unable to do regular upkeep on the home, and buyers may need to deal with "as-is" conditions.
If there is more owed on the home then the home is worth, that is known as being underwater. To purchase such a home, buyers must pay the difference between the appraised value of the home and the balance of the mortgage. This is known as a short sale.
Eventually, owners may lose the home and have to move out. That can often leave homes vacant and even stripped of essential equipment, wiring, copper, and more. Lender-owned homes can sit empty for months on end, leaving it vulnerable to vagrants, vandalism, squatting, and lots of damage to the interiors. Lenders, for their part, hate having to take ownership of these homes. Most lending institutions are not set up to be in the real estate business. They may price the homes at rock-bottom just to move them out.
On the other hand, some lender-owned homes are a good bargain for buyers. Some lenders do attend to any needed repairs and make frequent checks on the homes to ensure they are in good shape. Other positives for buyers are that they seldom have liens on them. Lenders will usually ensure that all liens have been satisfied before putting it up for sale. Also, you might be able to take advantage of the close relationship between the home and the lender. Lenders with homes for sale might be more willing to approve financing for the home.
While this category of distressed properties can represent great bargains, be sure you have the home inspected so that you know exactly what to expect with the financial side of things. To find out more about this category of the housing market, speak to your real estate agent.