A home foreclosure may appear to be a hot deal, but beware of hidden costs if you are bargain shopping. Foreclosed homes often come with a variety of repair and financial problems that can add up to major expenses. Before starting your property search, make sure you know exactly how much home you can afford and your financial tolerance for the undisclosed repairs.
Here are five hidden costs of foreclosed homes to watch out for:
- Hidden debt. A foreclosure wipes out the prior owner’s private debt, but there can also be public debt against a property, like real estate tax or income tax. Before making an offer, do a thorough title search to uncover past problems that could become future obstacles.
- A price that’s no bargain. Take care not to get caught up in the excitement of a hot opportunity, because you may actually pay far more than a property is worth. Though most foreclosed homes do indeed have advantageous price points, the financial institution behind the sale is ultimately looking to recoup the value of the defaulted mortgage. So, if that mortgage value doesn’t match up with the present value of the property, start shopping elsewhere.
- The effects of poorly maintained homes. The road to foreclosure usually includes a steep financial decline with dangerously deferred property maintenance along the way. This can mean systems that don’t work properly, unsafe areas throughout a home, and more debt to cover the cost of retroactive repairs. Don’t just ask how long a house has been empty, find out how long standard repair and maintenance have been on hold. Then you’ll be able to form a clear picture of the cosmetic and structural issues you’re buying into, determine costs involved, and, if you go through with the purchase, effectively perform triage to sort immediate needs from would-like-to-haves.
- Environmental issues. Sometimes foreclosed homes involve deeper, broader dangers that add a tidy sum to the reduced-price purchase. Such environmental threats as a leaky underground tank that impacts you as well as your neighbor can saddle you with very expensive responsibility once you step into the chain of title. Abandoned homes, especially those that have had the heat cut off, may also develop toxic mold problems. Minor mold is easily fixed but a major outbreak can render the home uninhabitable.
- Sub-prime inspection. A thorough professional inspection is key to any home purchase process – particularly one involving a foreclosed home – and assuming you can spot trouble on your own or otherwise forgo an unbiased evaluation leads to sub-prime information for your decision. Ensure a realistic approach to a property’s cost and potential problems by locating qualified professional inspection assistance through the American Society of Home Inspectors (ASHI)
With proper caution, a home foreclosure can be a good investment. Being aware of the hidden costs before you buy can help make sure you don’t end up in the same spot the last owners did!