With New Jersey’s Rise in Home Foreclosures, Is it Worth You Buying One – The Pros and Cons of Purchasing a Foreclosed Home
Foreclosures are something that is happening all across the country, but in terms of which state gets the title for the most foreclosures – New Jersey sits at the top of the list. New Jersey's high foreclosure rate isn't new, in fact, it's a number that has been soaring for years. With that said, it's not hard to spot vacant properties all over the state, with many complaining it has become an eyesore. The issue has become so serious that Gov. Phil Murphy is now putting together a number of bills that are meant to shorten the time that a property will actually sit vacant, and give homeowners more say in keeping their homes in the first place.
Statistics show that one in every 1,006 homes in the state is currently up for auction, is in pre-foreclosure, or is owned by the bank. While this may seem alarming, the one good thing is that the number of foreclosures seems to be slowing down a bit in 2019.
So while there is plenty of attention paid to the homeowner who is going through foreclosure or has just been through it, and rightly so, that vacant home presents a possible opportunity for someone looking to scoop up a home for a great deal – or does it? Buyers are often quick to assume that purchasing a foreclosed home means a fabulous rock bottom price, and while that may be true some of the time, there are many other pros and cons worth looking into when buying a foreclosed home.
Here we’ll dig a little deeper and uncover everything buyers should know when considering purchasing a home in foreclosure.
No Need to Worry About the Title
Any time you purchase a home, you are purchasing the title to it. The problem that some buyers run into is that there may be mortgages and back taxes tied to that title. While you would think this would be cleared up during the process of selling the home, this isn't always the case. Sometimes it's not even clear who the title belongs to.
When a home has been foreclosed, the bank takes it back and then holds the title. What this means is that you won't have to worry about who has the title, if there are back taxes and any other red flags. It is a clear cut process.
The Bank is Typically Motivated to Sell
Another big pro is the fact that the bank is typically motivated to sell the property. The longer they hold on to the property, the longer they go without recouping their money. They want to off-load the house and start getting paid for that mortgage. With that in mind, buyers can often negotiate with the bank to have repairs made, which could be quite costly.
Now it should also be noted that not every bank in every circumstance is going to be willing to make repairs. In some cases, they prefer to just sell it ‘as is’, which means you could be walking into a money pit if you aren’t careful. So, in that case, it can work as a con.
You Have a Chance to Make a Lot of Money
For those who look at buying property as an investment, then the ROI on foreclosed homes can be especially attractive. Often you can buy low, do renovations to the home, fix it up, and then turn around and sell it for a profit if you choose. In many cases, the property may be listed for below market value, which means real potential for profit.
You May Find it Easier to Get Financing
Another pro is the fact you may also find it easier to get financing through the bank that is actually holding the property. Again, it's all about the bank off-loading the property as quickly as they can, so providing you with a mortgage with lower monthly payments and a lower down payment can still be in their advantage.
May Not Be in Your Top Choice Neighborhood
When it comes to the cons, one of the top ones is property location. Everyone always likes to say that the top priority when investing in property is location - after all, it's the one thing you can't change. Unfortunately, it is quite common for foreclosures to be in areas that aren't your idea of the "perfect neighborhood". It will be up to the buyer to make that call and decide if it's still worth it.
"As Is" Condition Can Be Scary and Costly
One of the ways buyers get that "great deal" is to purchase the home in ‘as is’ condition. This means what you see is what you get. It's up to you to make any and all repairs and renovations. Now here's the problem, unless the buyer is knowledgeable and has fixed up houses before, the problems may not be evident. What looks like just minor surface renovations and repairs could spiral into massive projects. Obviously, this can be very time consuming and costly.
If you are serious about purchasing a property that is in ‘as is’ condition, it’s a wise idea to have a home inspector come in and take a look. At least you can then know what to prepare for.
The Process Can Take a Long Time
Then there is the biggest con of all, which is the time it can take to actually close the deal on a foreclosed home. Sometimes the original homeowner can stay on their property for up to 12 months, which means the waiting period can be extremely long from the buyer's perspective. Buyers need to be honest with themselves with exactly how long they are willing to wait.
Purchasing a Foreclosed Home Can be Right for Many Buyers
At the end of the day, for many buyers, the pros end up outweighing the cons, and they can plan to go ahead with the process and purchased a foreclosed home. Being informed and making sure you understand the process is always wise.