Buying a preforeclosure home: Pros and cons
Preforeclosure refers to the period after a homeowner defaults on their home loan/mortgage. Preforclosure is triggered when a homeowner has failed to meet their mortgage obligations for 3 months or more forcing the lender to file a public notice of default. Such notices are usually on local public records offices in your state. You can also find them in local newspapers. If you’re interested in buying a preforeclosure home, look no further, below are the main pros and cons to consider.
Most real estate professionals like me advice people to buy preforeclosure homes because of the reasons discussed below;
- You have more research time: Preforeclosure home buying allows you more time for comparing market analysis, doing title research and inspecting property. This is simply because default notices give borrowers several months to catch up. Real estate investors can use this period to do through research just in case borrowers are unable to recover.
- Sellers are more accommodative during preforeclosure: Buying a preforeclosure home is also advantageous since home owners are more open to offers especially if they get a chance to walk away with something or they simply want to keep their credit rating intact.
- Less competition: There is also less competition with preforclosure homes since homes aren’t up for sale yet. You can therefore avoid open market competition which is common when buying homes in foreclosure auctions. Less competition means better price.
- Poor property condition: If a person is unable to meet their mortgage obligations for several months, there is a high chance that they haven’t been affording home maintenance. The chances of buying a poorly maintained house are therefore higher when buying preforeclosure homes.
- Additional judgement costs: Preforeclosure homes are also tagged with unfavourable judgments from an investor’s perspective i.e. judgements on unpaid 2nd mortgage or improvement loan. Judgments can also include late fees among other fines. Such costs can easily erode the profits you intended to make by buying a foreclosure home.