Shopping for a foreclosure? Misconceptions abound about what's available and where, and whether a bank-owned listing is a deal. We asked real estate experts to weigh in on what's fact and fiction when it comes to buying a foreclosure. Foreclosures are always a bargain.
Many lenders try to maximize returns on foreclosures, and data from the Minneapolis Area Association of Realtors suggest that lenders are starting to offer larger discounts to buyers to get the properties off the books. However, many foreclosures need costly repairs, and determining those costs can be difficult. "Not every foreclosure is a bargain, but there are outstanding values, especially for first-time home buyers," said Aaron Dickinson, an agent with Edina Realty. A skilled buyer's agent can help determine what a house is worth and negotiate a price.
Foreclosures are only in certain neighborhoods.
Bank-owned homes are in almost every inner-city and in many suburban communities. For example, in October there were 150 foreclosures (homes that have been repossessed by the bank) and short sales (the in-default homeowner negotiates with a lender to sell the house for less than is owed on the mortgage before the home has completed the foreclosure process) available in Apple Valley. There were 128 in Elk River and 151 in Woodbury for sale.
Foreclosures are always in poor condition.
People lose their homes for different reasons, and many maintain the property up to the time they move out. While many homes sit vacant for a long time and are neglected, others just need a paint job and/or wall patches.
When you buy a foreclosure, you're buying the house "as is."
This is true in most transactions because banks don't make repairs. However, homes need to be safe, habitable and meet minimum property standards if a buyer obtains certain kinds of financing. Many cities require a Truth-in-Housing report that discloses the condition of the home to prospective buyers. Still, it's a good idea to pay for an independent home inspection.
It takes longer to buy a bank-owned listing.
Issues related to inspections, property condition and financing are more prevalent with foreclosures and can delay a sale or response to an offer. The timeline from an offer to closing can be unpredictable. Some say that the process is moving faster as agents and buyers become more educated.
It can be riskier to buy a home from a bank than from a traditional seller.
The state requires sellers and Realtors to disclose housing defects known to them. However, a bank may be out of state and a Realtor has never lived in the house, so they have limited knowledge of defects. Vacant homes are likelier to have problems that may not show up in a property inspection. Foreclosures also can have title issues. Experts recommend buying an owner's title insurance policy to protect them from undisclosed liens.
Financing can be difficult to get.
Some banks won't accept an offer from a buyer who is obtaining FHA financing because the bank (the seller) won't do the work required to meet the minimum property standards, such as removing lead-based paint. For FHA borrowers buying houses that need some repairs, one option is the FHA Streamlined 203(k) mortgage program, which places money in escrow to cover allowable repairs such as plumbing or a new roof.
Foreclosed homes are hard to find.
Today foreclosure listings are everywhere -- on real estate company and government websites, classified ads and on websites of sales agents who specialize in them.
Sources: Sandy Loescher, Sandy Green Realty; Stacey Bostwick, program manager, Powderhorn Residents Group; Chris Gemlo, Counselor Realty; Kris Wilson, senior loan officer, Fairway Independent Mortgage; Aaron Dickinson, Edina Realty.