How much can I save buying a foreclosure?

Buying a foreclosure may save you up to 40% off the cost of buying a house through traditional means; or you may end up not getting much of a discount at all. How much of a deal you end up getting really depends on a number of variables such as:

• The location
• The real estate market of the moment
• How much homework and hassle you’re willing to accept

It also depends on how you go about buying the property.

How do I buy a foreclosure?

Buying a pending foreclosure from the homeowner is one way to purchase the property. This process is only possible if you work with the homeowners before the foreclosure officially goes into effect.

Once the lender officially forecloses, the property goes to a public auction, which is a second way to buy a foreclosure. A third way to buy the property is to buy it directly from the bank, where the property ends up if no one buys it at auction.

What are some hassles in each type of transaction?

Buying directly from the owner may come with many problems with the title as well as with the property itself. It’s also the deal most likely to fall through. You may also be responsible for paying for the inspection and the real estate excise tax.

Hassles at auction include the sheer number of other people who may show up to bid on that same property. If bidding becomes intense and heated, you may end up with bids that are higher than the home is worth.

Bidding at auction also does not allow you to look inside the property prior to bidding, whereas buying from the owner or the bank may give you such an opportunity. There is also a high chance of a foreclosure slated for auction being postponed.

If a homeowner files bankruptcy or the bank tries to work with the owner to modify the loan, the foreclosure may not happen at all. Even if a foreclosure does go through, certain states allow the previous owners a shot at buying their own property back.

You may also have a tough time getting the former owners out of the home. Having to start eviction proceedings is not uncommon.

What are potential detriments of buying foreclosures?

A major caveat is watching for foreclosures that are priced much higher than they are worth. Kiplinger’s notes this could be the case when the homeowner is selling the home and wants to cover the cost of taxes, the balance of the mortgage, and closing costs.

Setting a price may be a hassle, with many foreclosures sold at auction where you have to show up and bid and pay cash if you win the bidding wars. Foreclosures may also include a lengthy waiting period before you can move in and expensive and extensive repairs to the home.

The home could be trashed or stripped if the previous occupant was upset or hoped to sell what they stripped to make additional money. Previous owners may remove the light fixtures, appliances, doorknobs and anything else that could be sold or to simply decrease the value of the home.

Finding out the true number of liens, judgments and foreclosure deeds of trust associated with the property may also be tricky. Being responsible for paying off any existing tax liens is also typically part of a foreclosure purchase, as is buying title insurance as soon as possible.

Emotional issues may be another part of the so-called bargain. Those losing their homes may be fraught with anger, fear and other intense emotions that make buying their foreclosed home from them a difficult task.

What else should I know about buying foreclosures?

Rather than trying it on your own, you may benefit from buying a foreclosure with the help of a real estate agent who sells them on a regular basis. Other helpful hints include being prepared to pay up front with sufficient cash to cover the full cost of the foreclosure and associated fees.

Foreclosures generally do not offer the same type of financing options as buying homes through the traditional market. Putting money aside for possible repairs and remodeling may be another major help, as is willingness to buy a foreclosure that is in a less than perfect state.

Exceptional discounts may be had from the banks if the property has been on their books for 12 months or longer, especially if you’re willing to take it off its hands “as is.”

Other things to watch out for are the state of the neighborhood and your reason for purchasing the foreclosure in the first place. If you hope to buy the property cheap to spruce it up and resell for a profit, MoneyCentral.MSN.com notes you have many factors working against you.

The longer the property is in your hands and vacant, the more it may cost you in property taxes and insurance while you are the official owner. You usually also have to factor in closing costs above and beyond the price of the foreclosure and, of course, the repairs and refurbishment to make the home ready to sell.

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